Tax Free Bonds In India – Benefits, Rate of Interest
Tax Free Bonds From Government Of India
According to analysis conducted by the economists, government of India is expected to issue new attractive tax free bonds with the estimated value of INR 60,000 crores for the year 2012-13. One of such bonds is offered by National Highway Authority of India (NHAI). Now question arises, is the interest rate offered on tax free bond worth your investment and will it safeguard your financial future? Before considering this as an investment option; let’s get a quick look on what are tax free bonds?
Definition: These are non-taxable bonds. i.e. amount received from the interest rate received as well as the maturity proceeds are tax exempt. Important point to note is – you cannot claim tax deduction on the money invested which is possible in case of infrastructure bond. Money collected by the government are utilized in improvising and development of country’s infrastructure.
These bonds are free from all the taxes. i.e. No taxes are deducted at the source (TDS) subject to the condition that selling of these bonds does not take place before it’s maturity period. In such case, Capital Gain Tax becomes mandatory.
Is it risky to invest:
- No, unless you sell it before maturity.
- Whenever the credit quality of the bond degrades, cost of the bond will go down.
- Since trading volume for these stocks is comparatively low as compared to others, fluctuation in stock price cannot be ignored.
How to buy and sell these bonds:
In case, you’ve missed the opportunity for purchasing during the IPO, you can purchase it from the secondary market. You can also sell them in the secondary market. And this is the right time to sell as interest rates are expected to go down in the coming years and during these period these bonds trade at a very high level.
- High net worth individuals as it does not carry any wealth tax.
- If long term financial planning is your aim, then it is not suitable.
- If the returns offered meet the financial goal (10 year or 15 year), then you can invest.
List of Issuers of Tax Free Bonds In India:
- National Highway Authority of India (NHAI)
- Indian Railway Finance Corporation (IRFC)
- Power Finance Corporation (PFC)