Want to save tax over your Rs 1 lakh limit ?

by khalid on 30/10/2010 · 9 comments

There is a new kind of tax saving option is introduced by finance minister this financial year and that is Section 80CCF. Equity savvy investor never liked to invest in Infrastructure bond and to encourage them to take part in Indian growth story and at the same time save some income tax too. According to the proposal, individuals can invest up to Rs 20,000 in these bonds in addition to the Rs 1 lakh limit available under Sections 80C, 80CCC and 80CCD.

L&T Infrastructure Finance Company Limited plans to raise Rs 200 crores with an option to retain any oversubscription of up to Rs 500 crores. The bonds have a face value of Rs 1,000 with 10 years maturity. There is a lock-in period of five years from the date of allotment.

Issue Details :-
Issue Period : 15th October 2010 to 2nd November 2010
Rating : “LAA+” by ICRA
Issue Size : Rs 200 crore with an option to retain upto Rs 500 crore
Face Value : Rs 1000 per Bond
Subscription Amount : Minimum 5 bonds
Lock-in Period : 5 years
Listing : NSE/BSE
Buyback Option : At the end of 5 yrs and 7 yrs from the date of allotment

The funds raised through this issue will be utilised towards “infrastructure lending” as defined by the RBI in the regulations issued by it from time to time, after meeting the expenditures of, and related to the issue.

The maximum amount of income not chargeable to tax in case of individuals (other than women assesses and senior citizens) and HUFs is Rs 1,60,000. In the case of women, the limit is Rs 1,90, 000 and in the case of senior citizens, it is Rs 2,40,000 for FY10. Hence those whose income exceeds these slabs can go for these bonds.

Tax Benefits :- Under section 80CCF of the Income Tax Act, Rs 20,000 per annum paid or deposited as subscription to long term infrastructure bonds shall be deducted in computing the taxable income. This is over and above Rs 1,00,000 tax benefit available under section 80C, 80CCC and 80CCD.

Benefits as per Tax slabs :-
1. Slab 10.3% : Rs 2,060
2. Slab 20.6% : Rs 4,180
3. Slab 30.9% : Rs 6,180

Pros:- The limit of Rs 20,000 per annum is in addition to Sections 80C, 80CCC and 80CCD. Hence, it is advisable to consider applying in this issue.
Cons:- The bonds are locked in for five years, so there is no exit in case you need the money midway which restricts liquidity.

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{ 7 comments… read them below or add one }

Smart Singh January 4, 2011

Hi Khalid, A question for you:

L&T offers 25 bps extra on the option with buyback after 7 years (7.75%), instead of 5 years(7.5%). If I understand it correctly, its L&T who will have the buyback option after 5 or 7 years. So why are paying more (by getting only 7.5%) for an option which is more valuable to the company (buyback after 5 years), compared to the other one which is less valuable (buyback after 7 years).
I’m sure I’m missing something here.

Reply

khalid January 5, 2011

Hi Smart,

You are smartly confusing us. L&T will pay more to the investors of 7 years as the company will use investors money for more time and vice versa.

Am i right ?

Reply

Smart Singh January 6, 2011

Sorry Khalid,
I was confusing buyback with callable bonds. I think the term ‘buyback’ is misleading. The investor, in fact, has a ‘sell-back’ option.

Reply

RAJEEV February 21, 2011

please send the phone no. of concerned person which i can purchase the infra bond.
thanks

Reply

S.DORABABU September 4, 2011

Dear Sir,

Please advise me,is it available LIC or L&T Infrastrucure bond for the financial year 2011-2012.If it available how it is to go for purchage.

DORABABU

Reply

Roshni Bhatia February 19, 2012

This is the time of the year where investors rush for tax saving and are bombarded with tax saving schemes. This article provides apt information to take correct tax saving decisions. Thanks for sharing.

Reply

khalid April 20, 2012

Thanks Roshni for your good words and your visit to BTB.

Reply

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