Don't Cross 20,000 in Infrastructure Investments


Don't Cross Rs.20,000 in Infrastructure Investments

Bangalore: It is advisable to limit infrastructure investments to 20,000 this year, reports Sandeep Shanbhag of Smart Investor.

Shanbhag says that one must not invest more than 20,000 in infrastructure because any amount exceeding this limit will only result in the coupon rates being lesser than the bank deposits. Also, even if one invests more than 20,000, one will only be eligible for the mentioned limit when it comes to tax deductions and not for anything above it. He encourages average Indian citizens to invest in bonds related to special infrastructure, as Section 80C provides for deduction on 1 lakh and above. Pranab Mukherjee, Finance Minister, provides 20,000 deduction on investments pertaining to this category, in effect from 2010. REC, IFCI, L&T and IDFC have started issuing these bonds since.

People can invest in this scheme through 2 ways –they can pick bonds having a maturity of 10 years or of 15 years. The minimum period of lock-in is 5 years for the first option and 7 years for the second one, which means that an investor can seek out only after the passage of the stipulated period. For bonds with a maturity period of 10 years, 8.95 percent rate of interest is provided, while the ones with a maturity period of 15 years are provided with 9.15 percent rate of interest. After the passage of the period of lock-in, the investor can leave via the secondary market or can take the help of a buyback given by the issuer. Here, the investor has option to pick either cumulative interest or the regular type.

Direct Tax Code (DTC) is of great importance when talking about infrastructure bond. Revised guidelines on DTC have been released by Central Board of Direct Taxes (CBDT). Since, these bonds were issued before DTC came into being; these bonds are free from the tax brackets. This is an added advantage of these bonds. Saving on taxes only adds to one’s investment because savings add up in this manner.

People must, however, keep one thing in mind – previous bonds of such types have been promoted via advertisements which boast of providing higher rates of return on investments but are not so in actuality. Investors will only earn the coupon rate even if they invest more than 20,000. This is because in the absence of tax deductions, an investment will only generate the same amount given by 8.95 and 9.15 percent rates of interest on the principal.

Shanbhag says that investing in infrastructure bonds is a wise decision to be taken this year and not next year. This is so because Section 80CCF, as announced by DTC, will not provide for the deductions available currently on infrastructure investments next year. He also says that investing in infrastructure is a good way of increasing one’s fixed income. The only catch here is that the first investment should have been made before the new guidelines of DTC came into being.