Investing in infrastructure bonds help you build the nation while saving on your tax through the special concessions they offer. However, as always, your tax planning investment must be part of an overall financial planning.
“Before investing in infrastructure bonds, one should compare it with other investment and tax saving tools and assess where it fits in overall financial planning,” says Surya Bhatia, certified financial planner and principal consultant, Asset Managers.
There is no limit as to the amount that can be invested in the specified infrastructure bonds but tax saving is available only up to a limit. Section 80CCF of the Income Tax Act allows a maximum deduction of R20,000 in a financial year, in addition to the deduction of R100,000 under sections 80C for investments in long-term infrastructure bonds. Section 80C permits a maximum deduction of R100,000 for investments in National Savings Certificates, the Public Provident Fund, life insurance premium and pension plans.
The bonds offer interest rate of 8% but the interest received on these bonds is not tax-free. The investor is liable to pay tax on the interest received on maturity.
Experts say that these bonds suit persons falling in the higher income tax slabs of 20% and 30%. Persons in the lowest 10 % tax slab are not left with taxable income after they have used up the Section 80C limit whereas those in higher tax slabs need another option to save tax.
“If you want assured returns, have a long term horizon and fall in the higher income tax slab, then investing in infrastructure bonds makes sense,” says Vishal Dhawan, founder of Plan Ahead Wealth Advisors.
Currently infrastructure bonds of IDFC and Rural Electrification Corporation (REC) are open for subscription. They have a tenure of 10 years and a lock-in period of 5 years. The IDFC issue closes on 4 February while that of REC closes on 28 March.