BANGALORE: Tax free bonds have emerged as highly popular investment option among investors due to the taxation benefit that they offer. These bonds, generally issued by Government backed entities, are exempt from taxation on the interest income received from such instruments under the Income Tax Act, 1961. The Central Government, in exercise of its powers conferred under Section 10 (15) (iv) (h) of the Income Tax Act, 1961, has authorized to issue tax-free, secured, redeemable, non-convertible bonds.

Some of the public undertakings which raise funds through issue of tax free bonds are IIFCL, IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC, Indian Renewable Energy Development Agency, Airports Authority of India and Cochin Shipyard.

Let’s have a look at some of the benefits of tax free bonds and the new bonds out in 2014:

Benefits of tax-free bonds:

The Tenor of Bonds is for 10 or 15 years. A Permanent Account Number is mandatory for the subscribers of such bonds to furnish their permanent account number to the issuer. It has registration with Issuer as the benefit under the said section shall be admissible only if the holder of such bonds registers his or her name and holding with the issuer.

There shall be maximum rate of interest on the coupon based on the reference from Government Security Rate. The G-Sec Rate would be the average of the base yield for equivalent maturity, as reported by Fixed Income Money Market and Derivatives Association of India. on daily basis prevailing for two weeks ending on the Friday immediately preceding the filling of final prospectus with the Exchange or Registrar of Companies (ROC) in case of public issue and the issue opening date in case of private placement.