Tuesday, November 1, 2011

Buy Infrastructure bonds and save up to Rs 6,000 tax :

Most of you must be recovering from the excesses of festivities. It is, therefore, hardly time to discuss tax planning. However, the trouble is that your employer would ask for your final tax-planning details in less than a month. If you want to avoid the last-minute rush, it is time to start giving final touches to your tax-saving attempts.

If you were planning to invest in the newly introduced infrastructure bonds, you can consider the issues of IFCI and PFC that are open for subscription. As you know, investment up to 20,000 in these bonds qualify for tax deduction under section 80CCF. By investing 20,000 in these bonds, introduced just last year, an individual in the highest tax slab can save tax of 6,180. This is in addition to the 1 lakh you can invest under Section 80C.

"Since the investment limit under Section 80CCF is separate from the Section 80C, investors should utilise this limit. Even if you miss these issues, make sure you invest in the subsequent issuances," says Anup Bhaiya, MD and CEO, Money Honey Financial Services. Distributors say such bond issues are expected from IDFC and L&T Infrastructure later in the financial year.

The similarities
Both the IFCI and PFC issues have many things in common. In both the cases, the 10-year bonds pay an annual interest rate of 8.5% per annum, while the 15- year bonds pay an interest of 8.75% per annum. If you are investing 5,000 under the cumulative option of any of these bonds for 10 years, you would get 7,519 at the end of the term; invest the same amount for 15 years and you get 8,995 per bond.

The minimum investment is for one bond with a face value of 5,000. You can buy in multiples of 1. Both the issues provide the annual and cumulative options of interest payment for both maturity tenors. You can opt to invest in the physical form or the demat form. If you are applying in the demat mode, you need to provide details of your demat account along with a copy of your Permanent Account Number (PAN) card, along with a cheque. If you are investing in the physical form, you need to attach a copy of your residence proof as well. There is a buyback option at the end of five years from the date of allotment. The bonds will be listed on the stock exchange once the mandatory lock-in period of five years is over, offering liquidity.

There are differences, too
In terms of financials, PFC has a larger balance sheet than IFCI. IFCI, on an income of 2,486 crore, has clocked a net profit of 706 crore for the year ended March 2011. On the other hand, PFC clocked a net profit of 2,620 crore on an income of 10,161 crore. However, the major difference in both the bonds is the credit ratings. While PFC bonds have been assigned a rating of 'AAA/stable" by Crisil and 'AAA' with a stable outlook by Icra, IFCI bonds have been assigned 'BWR AA-' by Brickwork Ratings India, 'CARE A+' by CARE (Credit Analysis and Research) and 'LA' by Icra. 

Source : ET

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