Tax-free infrastructure bonds are back in vogue as the financial year draws to a close.
Issues by Infrastructure Development Finance Co (IDFC), Rural Electrification Corp (REC) and India Infrastructure Finance Corp Ltd (
IIFCL) are open for subscription at present.
IIFCL announced its bond issue on Wednesday for raising Rs 1,200 crore. The issue, which offers the best rates, would be open for subscription from February 4 till March 4. It offers 8.15 per cent for 10-year schemes and 8.3 per cent for 15-year schemes.
Though these bonds do not offer interest rates higher than those offered by banks
on their fixed deposits (FDs), the post-tax return they give will be higher. For instance, if the 8.15 per cent offered by IIFCL would fetch an investor in the highest income tax (I-T) slab of 30.9 per cent, about 11.58 per cent return per annum - he/she would save Rs 6,180 I-T on an investment of Rs 20,000.
Compared to this, banks offer nine to 9.5 per cent interest on FDs of eight to 10-years. However, these bonds are beneficial only to those who are in the tax brackets of 30.9 per cent and 20.6 per cent. They may not fetch additional benefits for those in the tax bracket of up to 10.3 per cent and those who are not taxed.
The government, through a notification dated July 9, 2010, permitted IFCI, IDFC, LIC and infrastructure finance firms to issue long-term infrastructure bonds providing for tax benefit of up to Rs 20,000 in the year of investment, under section 80 CCF of the Income Tax Act.
This is over and above the Rs 1 lakh limit already available under sections 80C, 80CCC and 80CCD. The tax-free status was granted by the government to these specified bonds issued only by designated financial institutions. It was intended to increase the sources of funding for the $500-billion worth infrastructure projects to be taken up by India in the next five years.
Jagannadham Thunuguntla, strategist and head of research of SMC Global Securities said, "We see a rush of these issues in February and March. This is an additional channel created to finance infrastructure projects at a relatively low cost. It is a win- win for issuers and investors."
The top five such institutions are expected to raise nearly Rs 12,000 crore during this fiscal. These include IDFC (Rs 3,400 crore), REC (Rs 1,000 crore), PFC (Rs 6,000 crore), L& T Infrastructure (Rs 300 crore) and IIFCL (Rs 1,200 crore).
Courtesy: Mail Today 
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