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What Is The Difference Between Tax Free Bonds & Long Term Infrastructure Bonds?

The time of investing under schemes which help you save tax is approaching. Which is why people have started exploring new investment avenues which can reduce there taxable income. ‘Tax Free Bonds’ and ‘Long Term Infrastructure Bonds’ are two good investment options available which can help you save tax. But most of the people do not know the difference between both these terms and how much one can save by investing under these investment alternatives. So lets have a discussion to understand the difference between ‘Tax Free Bonds’ and ‘Long Term Infrastructure Bonds’.

tax free investment

What Are Tax Free Bonds?

Tax free bonds are bonds issues by Government entities, to arrange funds for building country’s infrastructure. Few designated entities which issue tax free bonds in India includes National Highway Authority Of India (NHAI) tax free bonds and PFC. These bonds generally offers a return of around 8% and With a maturity period of around 10 to 15 years.

What Are Long Term Infrastructure Bonds?

Long Term Infrastructure Bonds are bonds issues by

  • Industrial Finance Corporation of India Ltd.
  • Life Insurance Corporation of India
  • Infrastructure Development Finance Company Limited
  • A Non-Banking Finance Company (NBFC) classified as an Infrastructure Finance Company by the Reserve Bank of India (RBI)

In 2010, the government of India introduced a new section under Income tax act 1961 i.e section 80CCF. This section had been introduced to offer additional income tax deduction on investment upto Rs 20,000 in the financial year 2010-11. This deduction is over and above Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor’s savings into infrastructure sector directly.

ALSO READ : Why One Should Not Invest More Than Rs 20,000 In 80CCF Tax Free Infrastructure Bonds?

ALSO READ : Make Investment Under Tax Free Infra Bonds, Avail Tax Benefit Even After DTC

Tax Free Bonds vs Long Term Infrastructure Bonds

Tax Free Bonds

Long Term Infrastructure Bonds

Investment made under tax free bonds is not exempt from tax. Investment upto Rs 20,000 made under long term infrastructure bonds is exempt from tax.
Interest Earned on these bonds is not taxable. Interest Earned on these bonds is taxable.
Indian companies offering tax free bonds : IRFC, NHAI, HUDCO , PFC Indian Companies offering long term infrastructure bonds : REC, L&T , IDFC,  IFCI, PFC,  PFS , SREI
Tax free bonds do not have any lock in period Long term infrastructure bonds have 5 years of lock in period

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About the Author: Praveen Unnikrishnan

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