Additional deduction for Investment in Infrastructure Bonds:
(Deduction Rs.20,000 - Lockin period 5 years - Interest Taxable)
With the introduction Section 80C from the AY 2011-12 i.e financial year 2010-11 onwards every individual is eligible for a deduction from his gross total income which is equal to an amount invested in notified long-term Infrastructure Bonds. But the amount of deduction is limited to Rs.20,000.These bonds are available with 10 year maturity and 15 years maturity. Lock-in period is 5 years. The interest rates range from 7.80% to 8.00%.
It is important to note that interest from these bonds is taxable.These bonds are generally issued by NBFCs. Before investing one has to take care of the rating. Any bond whose rating is less than AA is not worth investing.
These bonds come with a buy back, cumulative and non cumulative options. According to analysts it is more prudent to opt for buy back option as one could liquidate the bond and invest in other instruments that would fetch higher income.
Depending on the tax slabs one falls under the approx yield on investment would be as under:
With buy back option:
- Tax slab - 10% - 9.4
- Tax slab - 20% - 11.3
- Tax slab - 30% - 13.5
Without buy back option:
- Tax slab - 10% - 8.6
- Tax slab - 20% - 9.5
- Tax slab - 30% - 10.48
Though certain NBFC have already issued and closed the bonds, more would come in the three months period Jan'11 to Mar'11. It is likely that LIC, PFC and IIFCL would come up with bonds in the months to come.
