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 raises funds through issue of tax free bonds are IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC,Indian Renewable Energy Development Agency (IREDA) etc.
Features
Tenure: Choice of 10 years, 15years & 20 years- Such bonds are likely to be listed on NSE / BSE
- No lock-in period
- Bonds upon trading on NSE/BSE, liquidity is available.
- Normally seen as safe investment.
- Could be held either in Demat or Physical form
- PAN is Mandatory
Tax Advantage
How to Invest
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Investor may apply in Demat as well as Physical Mode, with required documents as mentioned in the respective prospectus.
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Download Application Forms
Who Can Invest
- Retail Individual Investors (RIIs)
- High Net worth Individuals (HNIs)
- Corporates/Trusts
- Qualified Institutional Buyers (QIBs)
Advantages
- Tax-Free Income
- Low risk, since companies have a better credit rating
- Listing of bonds on exchanges provides liquidity
- Option of holding bonds in ‘Demat Form’ makes your investments easy to handle & monitor
- Ratings by agencies like CARE, FITCH, CRISIL, ICRA enables you to assess the quality of instruments
