It is time to start working on your tax savings. With just 2 months away from March 31, it is time to execute some action. Infrastructure bonds are gaining popularity as a tax saving instrument because of the recently introduced tax benefit under 80CCF.
Under this Section of the Income Tax Act, an investor can seek tax relief on the investment amount up to Rs 20,000 in the long term infrastructure bonds. After a spate of infrastructure bond issuances such as IDFC, IFCI, REC, PFC, L&T Infrastructure Finance has launched a long term infrastructure bond issue. The earlier bond issuances were priced in the range of 9-9.16% per annum. L&T Infrastructure Finance is offering 8.70% on its bonds.
Should you invest in such bonds?
"It definitely makes sense to invest in these bonds, if you have not invested in infrastructure bonds as yet. These bonds are priced lower than the earlier bond issuances reflecting a possibility of rate cut in near future. If there is no liquidity pressure you should opt for the cumulative option for a maximum period of 10 years, under which the interest rate is compounded annually," says Pankaj Mathpal, certified financial planner.
Investors having a demat account can take purchase the bonds dematerialised form and trade after the minimum lock in period, which is 5 years.
"Investing in Infrastructure Bonds will be useful most to those in the highest tax bracket as the tax savings potential is the highest. Even for 20% tax slab it is fine. For those in 10% taxslab, it is not really that lucrative and not recommended," says Suresh Sadagopan, Certified Financial Planner, Ladder 7 Financial Advisories.
For choosing the bond one needs to see the rating assigned to the bond. "You have to choose the correct tenure ( 10/15 years ), based on which they will have the option for buy back after 5/7 years. Investor needs to choose yearly interest paying or cumulative options based on their requirement for regular cashflows," says Sadagopan.
Under this Section of the Income Tax Act, an investor can seek tax relief on the investment amount up to Rs 20,000 in the long term infrastructure bonds. After a spate of infrastructure bond issuances such as IDFC, IFCI, REC, PFC, L&T Infrastructure Finance has launched a long term infrastructure bond issue. The earlier bond issuances were priced in the range of 9-9.16% per annum. L&T Infrastructure Finance is offering 8.70% on its bonds.
Should you invest in such bonds?
"It definitely makes sense to invest in these bonds, if you have not invested in infrastructure bonds as yet. These bonds are priced lower than the earlier bond issuances reflecting a possibility of rate cut in near future. If there is no liquidity pressure you should opt for the cumulative option for a maximum period of 10 years, under which the interest rate is compounded annually," says Pankaj Mathpal, certified financial planner.
Investors having a demat account can take purchase the bonds dematerialised form and trade after the minimum lock in period, which is 5 years.
"Investing in Infrastructure Bonds will be useful most to those in the highest tax bracket as the tax savings potential is the highest. Even for 20% tax slab it is fine. For those in 10% taxslab, it is not really that lucrative and not recommended," says Suresh Sadagopan, Certified Financial Planner, Ladder 7 Financial Advisories.
For choosing the bond one needs to see the rating assigned to the bond. "You have to choose the correct tenure ( 10/15 years ), based on which they will have the option for buy back after 5/7 years. Investor needs to choose yearly interest paying or cumulative options based on their requirement for regular cashflows," says Sadagopan.
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