As per income tax act 1961, people can get tax benefit of Rs 20,000 by investing under infrastructure bonds. This tax deduction of Rs 20,000 will be over and above Rs 100,000. To avail the deduction of additional 20,000, people have started investing under infrastructure bonds.
As per financial advisors, investors investing under infrastructure bonds should limit there investment to Rs 20,000 only for this financial year. As investors investing anything more than Rs 20,000 for a financial year will not get any additional tax benefit on there investment. Secondly any investment above Rs 20,000 will get lesser interest rate as compare to bank deposit.
Several infrastructure companies are coming up with there issues this year which includes companies like REC, IFCI, L&T, IDFC, Srei and more. Infrastructure bonds offered by these companies offers two options, one with 10 years of maturity and other with 15 years. The buyback period or minimum lock in period for these bonds ranges from 5 to 7 years. Which means investor need to maintain his investment under these bonds for at least 5 years or 7 years (depending on the type of bond). After the passage of the lock-in period, investor can redeem his investment either in the secondary market or by selling back to the issuer of the bonds.The rate of interest on these bonds ranges form 8.90% to 9.16% depending of the specifications of the bonds. Here, the investor has option to pick either cumulative interest or the regular type.
Infrastructure bonds issued before implementation of DTC will enjoy the benefit of tax deduction. Which means if investor invest in infrastructure bonds this year, as DTC has not been implemented till now investor will get the benefit of Rs 20,000 tax deduction this financial year but not next year. This is so because Section 80CCF, as announced by DTC, will not provide for the deductions available currently on infrastructure investments next year.