Infrastructure Bonds – Is It a Good Investment Option?

Infrastructure bonds are tax savings bonds issued by corporations associated with the Government of India. Recently, the government of India granted approval to Life Insurance Corporation (LIC), Industrial Finance Corporation of India (IFCI) and Infrastructure Development Finance Company (IDFC) to issue infrastructure bonds.

Industrial Finance Corporation of India (IFCI) is the first to come out with an issue providing 7.85 – 7.95 returns. You can either opt for cumulative interest (interest paid on maturity) or annual interest. Minimum investment amount – Rs 5000. Tenure of investment -10 years, with or without buyback option after five years.

Tax benefits on Infrastructure bonds 
The maximum deduction allowed under Section 80CCF for this investment is Rs 20,000 each year. This is apart from the deductions of Rs 1 lakh which is allowed under section 80C of the income tax act for the financial year 2010 – 2011. Gains from the these bonds will be liable for capital gains tax which can be 10% or 20% with indexation benefits.

How much can I save by investing in Infrastructure Bonds? 
This will affect individuals on different tax slabs as follows –

  • 10% tax bracket (income between Rs 1.65 – 5 lakh), can save Rs 2060
  • 20% tax bracket (income between Rs 5 – 8 lakh), can save Rs 4000
  • 30% tax bracket (income more than 8 lakh), can save Rs 6180

Investment rationale 
First and foremost point is tax benefit. Individuals across various tax brackets should invest and make use of the additional deduction. Secondly as the interest rate is likely to inch further, the returns from this investment will become attractive vis–vis other products.

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