IDFC infra bonds: A tax-saving scheme with buyback option

IDFC has come out with a public issue of long-term infrastructure bonds in the form of secured redeemable non-convertible debentures. Investments of up to Rs 20,000 in these infrastructure bonds are eligible for tax exemption under section 80CCF. This is in addition to the Rs 1 lakh limit available under Section 80C, 80CCC and section 80CCD of the Income-Tax Act. The issue is currently open and will close for subscription on December 16.

THE PRODUCT

The bonds on offer have two investment options. While series 1 carries a 9% coupon, payable annually, series 2 is a cumulative option where 9% will be paid compounded annually. The face value of each bond is Rs 5,000 and one can apply for a minimum of two bonds. The bonds have a lock-in period of five years. At the end of five years, you can sell the bonds on NSE. Also, there is a buyback facility available. Investors can subscribe to these bonds in either the physical form or in demat form.

TAX BENEFITS

An investment of Rs 20,000 would fetch a tax exemption of Rs 2,060 if your tax rate is 10.3%, Rs 4,120 (if your tax rate is 20.6%) and Rs 6,180 (if your tax rate is 30.9%).

WHY APPLY

These bonds have got the highest credit rating of AAA from both ICRA and Fitch. The investment limit of Rs 20,000 per annum for tax benefits in these bonds is in addition to that available under Section 80C, 80CCC and 80CCD.

WHY NOT TO APPLY

You can’t exit these bonds before five years because of the mandatory lock-in period.