Infrastructure
Bond ?
Key Features :
New Section
Introduced in Income
Tax Act 2011: Section
80CCF was introduced
in the Income Tax Act,
1961 in the budget of
February 2010. As per
this section
investments made in
notified
infrastructure bonds
are exempt from tax up
to maximum of Rs
20,000 per year.
Section 80CCF allows
individuals to invest
Rs. 20,000 in
infrastructure bonds,
and reduce this amount
from taxable income.
This exemption is in
addition to the Rs.
100,000 deduction
under section 80C
(Investment in
instruments like ELSS
Mutual Funds, Life
Insurance, Provident
Fund etc).
Interest Income is
Taxable: The
interest income from
infrastructure bond is
taxable. The interest
will be added to
investors taxable
income. This means
even though the
investment in these
bonds is exempt from
tax (maximum Rs
20,000). interest
income is not. This
means investment under
section 80CCF is
advisable only after
the investor has
completely exhausted
Rs One Lakh investment
under section 80C.
The funds raised
through these bonds
will be utilized
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. These
infrastructure bond
issues are part of the
government's effort to
mobilize money to
part-fund the massive
$1-trillion
infrastructure spend
it has planned for the
Twelfth Plan.
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.
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.
