New Delhi: Indians have vast options for investing. The availability of a plethora of options creates confusion among investors about the right investment option. This became the go-to method to make the right decision. Investors seeking a safe and tax-free return may find Tax-Free Bonds to be an excellent choice.
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Tax-Free Bonds: Return
These bonds typically offer returns equivalent to or slightly higher than Fixed Deposits (FDs), with the added advantage of the government’s sovereign guarantee.
Tax-Free Bonds: Tax Exemption
One key benefit is that the interest earned on these bonds is exempt from taxes.
Tax-Free Bonds: Issued By Public Sector Companies
Tax-free bonds are issued by public sector undertakings or companies supported by the government, including entities like NTPC, NHPC, India Infrastructure Finance Company Limited (IIFCL), National Highway Authority of India (NHAI), Housing and Urban Development Corporation Limited (HUDCO), Indian Railway Finance Corporation (IRFC), Power Finance Corporation (PFC), REC, and NABARD.
Tax-Free Bonds: Why This Bond Is Issued?
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These bonds are issued with the specific purpose of raising funds for a fixed tenure. They come with a fixed coupon rate, ensuring a guaranteed return. Listed on the stock market, Tax-Free Bonds also enjoy tax benefits on the returns earned.
Tax-Free Bonds: Advantages
The primary advantage of Tax-Free Bonds lies in their superior safety and credit ratings compared to other bonds. Additionally, the interest earned on these bonds is not subject to tax, thanks to the government’s sovereign guarantee.
Tax-free bonds typically have a lock-in period starting from 5 years, with many having maturities of 10 or 15 years. These bonds offer returns that surpass those of FDs or Recurring Deposits (RDs) and do not attract tax on the income.
Especially attractive for high-income taxpayers, Tax-Free Bonds can be acquired through an exchange.
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Distinguishing Tax-Free Bonds From Tax-Saving Bonds:
While both Tax-Free Bonds and Tax-Saving Bonds provide tax benefits, they differ in their applicability. Tax benefits under Section 80CCF of the Income Tax Act are available for investments made during a financial year, allowing taxpayers to reduce their taxable income by up to INR 20,000. However, this benefit is on the invested amount and does not extend to the returns or interest income.
