Tax Free Bonds – Public Issue
Five entities have been authorized for issuance of Tax Free Bond issue, during FY 2011- 12 and the issuers raised more than Rs.28,000 Cr. The CBDT has authorized 10 issuers to raise Rs.53,500 Cr. for FY 2012-13. These issuers have been raising funds through private placement and are soon coming out with public issue.
Tax Free Status
The Central government, in exercise of its powers conferred under Section 10 (15) (iv) (h) of the Income tax Act, 1961, has authorized the above entities to issue tax-free, secured, redeemable, non-convertible bonds of an aggregate amount of Rs.53,500 Cr. during the FY2012-13.*
The interest income on these bonds is tax exempt
Performance of public issues of FY 2011-12
- During FY2011-12 five public sector entities came out with public issue of tax free bonds and the bonds are listed on exchanges.
- All the five issues of tax free bonds are trading at a premium on the exchanges
- A portfolio of with equal allocation in all 5bonds would have yielded 4.5% in price gain
- The following table shows the absolute total post tax gains (Tax free coupon, accrued interest and Capital Gains) for the different bonds
Features
- Tenure: Choice of 10 years and 15years
- Proposed to be listed on NSE and BSE**
- No lock-in period**
- Secured issue
- Either in Demat or Physical form
- PAN is Mandatory
Who Can Invest**
- Retail Individual Investors (RIIs)
- High Net worth Individuals (HNIs)
- Corporates
- Qualified Institutional Buyers (QIBs)
Issuers for FY 2013
- Indian Railway Finance Corporation (IRFC)
- India Infrastructure Finance Company Limited (IIFCL)
- Housing and Urban Development Corporation HUDCO)
- National Housing Bank (NHB)
- Power Finance Corporation (PFC)
- Rural Electrification Corporation (REC)
- Jawaharlal Nehru Port Trust
- Dredging Corporation of India
- Ennore Port Limited
- National Highway Authority of India (NHAI)
Advantages
- The bonds are issued by good rated central PSU's and are considered very safe.
- Interest earned is Tax exempt
- No cap on amount of investment eligible for tax benefits
- Can be sold in secondary market without any lock-in period
- Listed securities
* as per CBDT Circular dated 6thNovember 2012 for tax free bonds.
**for exact details refer individual tranche prospectus of respective issuers
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