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Time to Invest Big in Infrastructure: Infrastructure Bonds

By SiliconIndia | Monday, 06 February 2012, 21:36 Hrs

Mumbai: Suneet Maheshwari, CEO of L&T Infrastructure Finance Company Limited which opened Tranche 2 of its tax saving infra bonds, expects huge infrastructure investments in India over the next 5 years . While highlighting the strong future prospects of infrastructure sector in India, he said that Infrastructure bonds are a boon to the economy and the tax payers.

Infrastructure bonds are gaining popularity as a tax saving instrument amongst the various debt options. With yields on government securities beginning to moderate, interest rates (which are linked to gilt yields) on future bond issues may not be as high as compared to the current issues. Already, rates on the current tranche of issues are lower than what was offered a month or two ago.

"L&T Infra opened Tranche 2 infra bonds on January 10, 2012 and would remain open for subscription till February 11, 2012. This issue is worth

300 crore and the allotment is on first-come-first-serve basis, so investors should not miss out as the yields are still high which may not be the case going forward as the interest rates are expected to soften further," said Maheshwari. Infrastructure Bonds provides tax benefit by reduction in taxable income and is specifically targeted to the retail/ salaried income investors who are looking for more options to reduce tax. They are different from tax free bonds (e.g. bonds issued by NHAI) which are even targeted to High net worth / Institutional investors.

Currently the maximum investment limit for tax saving u/s 80CCF is

20,000 annually. In the coming budget the Finance Ministry is considering a proposal to double the investment limit in infrastructure bonds to

50,000 as part of a strategy to provide funding boost to this vital sector. "Many of us had recommended that the government increase the limit to

50,000. And, we believe if it does become Rs 50,000, the response might actually be more. A tax break like this will help channelise larger savings into infrastructure." said Maheshwari. The tax saving bonds are a good option not just for the investors but also for the issuers to raise funds as it provides them access to LT funds having a tenor of 5 years and above.

This is a boon for tax payers as it is above the existing Section 80C tax exemption available to taxpayers which have a limit of Rs 100,000. Tax payers can now invest in Infra Bonds during Jan-March quarter and reap twin benefits of higher returns and getting a deduction of

20,000 from, In this regard, their taxable income. Infra Bonds compares well to other tax savings schemes available under the Section 80C of The Income Tax Act. The investor has two options available - annual interest payment or a cumulative interest payment. The current interest rate offered is 8.7 percent p.a.

The Tranche 2 Bonds have been rated "CARE AA+" by CARE and "[ICRA] AA+" by ICRA

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