Tax Free Bonds 2015-16: Last opportunity to earn attractive returns

Written on Tuesday, February 16, 2016
By Kumar Pushpraj

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During the current financial year, tax free bonds have received overwhelming response from investors. Even the Bollywood could not resist investing due to the attractive benefits. Film stars like Akshay Kumar, Aamir Khan and Kareena Kapoor Khan invested in IRFC Bonds, while Ranbir Kapoor and Aishwarya Rai Bachchan parked their money in NHAI Bonds. If you have not yet invested and wondering what makes this investment avenue such an attractive option, let me introduce you with these government bonds.

 

As the name suggests, Tax-free Bonds are financial instruments which offer Tax relief to the investors by way of exemptions in Income Tax. These bonds have emerged as a popular choice among investors due to the taxation benefit it offers. Tax-free bonds are generally issued by government enterprises and have a fixed interest rate. As the proceeds from the bonds are invested in infrastructure projects, they have a long-term maturity of typically 10, 15 or 20 years. Being liquid, these bonds are tradable in the secondary market and are listed on exchanges. They carry credit ratings from one of the rating agencies approved by SEBI as well as Reserve Bank of India (RBI).

 

For the financial year 2015-16, government of India authorized state owned entities to raise Rs. 40,000 Crore through tax free bonds. Most of the bonds got over subscribed on the very first day of issue opening. While a major portion of authorized amount has been reached by these entities but to complete their allocation limit, some of them are coming up with second round of issue. This is definitely a golden opportunity for investors who missed it during the first phase.

 

In the month of February and March these issues are expected to arrive:

Note: Issue dates have not yet been disclosed by the entities. The above mentioned dates are tentative and may or may not change.

 

These bonds are completely tax free but capital gains made on selling of tax-free bonds on stock exchanges are taxed. If the holding period is less than 12 months, capital gains on sale of tax-free bonds on stock exchanges are taxed as per the tax slab of the investor. If bonds are held for more than 12 months, the gains are taxed at 10 per cent.

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