Finance Minister in Union Budget had introduced a new section 80CCF under the Income Tax Act, 1961 that provide income tax deduction of Rs. 20,000 in addition to Rs 1 Lakh available under other provisions for claiming tax deductions for investments made in the Long Term Infrastructure Bonds that are notified by the central government.
This announcement will boost the infrastructure projects in India. The deduction can be claimed by individuals or HUFs for the investments made in subscribing the long term infrastructure bonds
Which Long-term Infrastructure Bonds eligible for tax deduction?
As per the notification given by the central government, the bonds issued by following entities are eligible to subscribe as long term infrastructure bonds and eligible for a deduction under new section 80CCF
Industrial Finance Corporation of India (IFCI), Life Insurance Corporation of India (LIC), Infrastructure Development Finance Company (IDFC) and Non-Banking Finance Company (NBFCs) who are classified as an infrastructure finance company by the Reserve Bank of India (RBI).
Benefits of Tax savings for Long Term Infrastructure Bonds
Any investment in long term infrastructure bonds up to Rs. 20,000 is eligible for tax deduction from the taxable income. This means for an individual falling under 30% tax bracket will effectively save Rs 6,180 and a lower tax bracket individual of 10% will save tax up to Rs 2,060.
Lock-in period and Yield of the bond
These long term infrastructure bonds will be available for tenure of minimum 10 years and the lock-in period of 5 years. It means investors can not exit from the bonds before 5 years and after 5 years they have an option to exit in the secondary market or via buyback offer given by the issuer. Investors can also pledge the bonds in some specified banks to obtain the loan against the bonds only after completing the lock-in period.
Yields of the long term infrastructure bonds and other detailed terms and conditions are specified by the issuers at the time of launch on the respective bonds. However, the important thing to note is the yield will not be higher than the yield of government securities of corresponding residual maturity schemes.
Who are Eligible Investors?
Only Resident Individual (Major) and HUF can invest in these bonds.Any tax saving investment is always welcomed by tax payer however before investing such tools it is wise to check the returns from the investment over the long term period.