Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

NHAI, PFC file prospectuses, coupon rate not yet decided

MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up.

The National Highway Authority of India (NHAI) and Power Finance Corporation (PFC) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi).

Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1.

Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. 

Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free.

"NHAI's public issue of tax-free nonconvertible bonds of face value of Rs 1,000 each is in the nature of debentures having tax benefits under section 10(15) (iv) (h) of the Income-Tax Act, 1961," the prospectus said.

The coupon rate for these bonds is yet to be fixed. The bonds will have two maturity tenures of 10 years and 15 years.

The coupon rate for these tax free bonds will be nearly 8.5 per cent, a merchant banker handling the issue said.

The NHAI issue has already got AAA rating from three agencies Crisil, CARE and Fitch. The PFC bonds are also rated AAA by Crisil and Icra.

NHAI's issue was earlier slated to hit the market early in December but may take a few more weeks, according to merchant bankers. PFC filed the prospectus last week.

Bond tale NHAI clarified the interest from its new bonds will be tax-free Tax-free bonds give investors tax-free return on any amount invested The bonds will have two maturity tenures of 10 years and 15 years

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Download Section 80CCF Tax Saving IDFC Infrastructure Bonds Application Form

https://sites.google.com/site/infrabondapplications/home/IDFC-Infrastructure-Bond-Application-Forms

Download Section 80CCF Tax Saving L&T Infrastructure Bonds Application Form

https://sites.google.com/site/infrabondapplications/home/l-t-long-term-infrastructure-bond-for-year-2011---2012

Find a collection canter:

Collection canter near you

Income tax Section 80CCF - A Tax saving Scheme that has Buyback Option IDFC Infra Bonds

IDFC has come out with a public issue of long-term infrastructure bonds in the form of secured redeemable non-convertible debentures. Investments of up to . 20,000 in these infrastructure bonds are eligible for tax exemption under section 80CCF. This is in addition to the . 1 lakh limit available under Section 80C, 80CCC and section 80CCD of the Income-Tax Act. The issue is currently open and will close for subscription on December 16.
The bonds on offer have two investment options. While series 1 carries a 9% coupon, payable annually, series 2 is a cumulative option where 9% will be paid compounded annually. The face value of each bond is . 5,000 and one can apply for a minimum of two bonds. The bonds have a lock-in period of five years. At the end of five years, you can sell the bonds on NSE. Also, there is a buyback facility available. Investors can subscribe to these bonds in either the physical form or in demat form.  
An investment of . 20,000 would fetch a tax exemption of . 2,060 if your tax rate is 10.3%, . 4,120 (if your tax rate is 20.6%) and . 6,180 (if your tax rate is 30.9%).
These bonds have got the highest credit rating of AAA from both ICRA and Fitch. The investment limit of . 20,000 per annum for tax benefits in these bonds is in addition to that available under Section 80C, 80CCC and 80CCD.
You can't exit these bonds before five years because of the mandatory lock-in period.

 

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Download Section 80CCF Tax Saving IDFC Infrastructure Bonds Application Form

https://sites.google.com/site/infrabondapplications/home/IDFC-Infrastructure-Bond-Application-Forms

Download Section 80CCF Tax Saving L&T Infrastructure Bonds Application Form

https://sites.google.com/site/infrabondapplications/home/l-t-long-term-infrastructure-bond-for-year-2011---2012

Find a collection canter:

Collection canter near you

IDFC Section 80CCF Tax Saving Infrastructure Bonds

IDFC has launched their Section 80CCF infrastructure bonds, and these come with a slightly higher interest rate than the other bonds that have been released so far.

They carry a 9% annual interest rate, and IDFC has simplified the issue a little bit by having the option with only one maturity – that of ten years.

Like, the other 80CCF bonds, these will have the the annual interest payment or the cumulative option, and a buyback option after 5 years. 

The issue opens on November 21, 2011 and closes on December 16, 2011. In the past they have appeared on online platforms like ICICI Direct and Edelweiss, so that's one way to buy them, or as Austere suggested you can print the forms online and submit it in one of the collection centers.

Here are some other details about the bonds:

Series	1	2
Interest Rate	9%	Cumulative but effectively 9%
Maturity Period	10 years	10 years
Buyback Option	5 years	5 years
Buyback Amount	5,000	7,695
Maturity Amount	5,000	11,840

After the lock in period of 5 years, the bond will list on the NSE and BSE.

For whatever it's worth the issue is rated highly by ICRA and Fitch – both of them rated the issue AAA. To me, it doesn't make a lot of sense to apply anything more than Rs. 20,000 and that too only on one of these 80CCF bonds, so if you have applied for something already then you are better off investing your money in any other bank fixed deposit which doesn't have any lock in period and will have a slightly higher interest rate also.

A new question that I see appear a few times with respect to these bonds is if you need to buy it every year to get the tax benefit. I think the source of that question is the confusion between the tax benefit.

Please be cognizant of the fact that the interest is not tax free. The interest will be taxable every year, but the way you get the tax benefit is that the value of bonds that you buy gets reduced from your taxable salary, and that means you have to pay less tax.

The other question that I saw today was would you have to pay tax if you exercised the buyback and the answer to that is that buyback doesn't affect how the bond is taxed.

If you took the annual interest option then the interest will be taxed every year, and if you took the cumulative option then you will be taxed capital gains. The face value of the bond will not be taxed.

 

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You can download the Infrastructure Bond applications below: 



https://sites.google.com/site/infrabondapplications/