Last opportunity to get int rate at 9% pa in infra bonds
The year is coming to an end and its time to plan and invest for saving your income tax. Apart from your regular tax saving instruments eligible for deductions of up to Rs 1 lakh, there are long term infrastructure bonds in the market. These infrastructure bonds are debt instruments wherein an investment upto Rs 20,000 is eligible for individual income tax benefits under section 80CCF. This additional Rs. 20,000 deduction is over and above the normal limit of Rs 1 lakh investments under ELSS, PF, insurance etc. Hence, an investment of Rs 20,000 will mean tax exemptions of Rs. 6,180 or Rs. 4,120 or Rs 2,060, depending on your income tax slab of 30.90%, 20.60% or 10.30% respectively. While everyone is expecting there will be subsequent issuances in January to March period, it is unlikely that those issues will offer 9% interest rate.
All the current trendlines shows a downward movement in the 10 year G Sec.
As per regulations, the maximum interest rate that can be offered on these tax-saving infrastructure bonds is the annualized yield on Government Securities as on the last working day of the immediately preceding month of issue. The general market perception is that interest rates have peaked out as evidenced by the recent pause in interest rate hike by RBI. In line with these sentiments, the yields on Government Securities have been on a downturn in the recent past. Currently the 10 year G sec is trading at around 8.35% (8.50% in annualized terms) – 50 bps lower than the October closing which was 8.88% (9.07% in annualized terms).This is a significant movement from the investor’s perspective.
Going by this trend, any infrastructure bond issue in January-March period is likely to come at a lower coupon rate, as compared to the current issues. Hence this is your last opportunity to lock in an attractive interest rate of 9% p.a. in these infrastructure bonds.
Deduction available is the least of (i) Rent paid less 10% of total income (ii) Rs.2000 per month (iii) 25% of total income.