The government had, in the Budget, announced that under Section 80CCF, any individual or HUF can invest up to Rs 20,000 in infrastructure bonds issued by certain institutions as notified by RBI. This will be over the Rs 1-lakh deduction allowed under Section 80C.
I would like to know
1. What is Infrastructure bonds?
2. Does it has fixed interest component?
3. As a Muslim, can we invest in the Infrastructure bond to save Tax.
Under the existing tax laws, Section 80C allows every tax payer a deduction up to Rs 1 lakh for investing in certain notified instruments like insurance policies, ELSS funds, PF, PPF etc. However, earlier this year in the Annual Budget for the tax year ending March 31, 2010, the Finance Minister introduced another deduction of Rs 20,000 under Section 80CCF, which is over and above the Rs 1 lakh deduction allowed under Section 80C.
As per Section 80CCF, any individual or HUF can invest up to Rs 20,000 in Infrastructure Bonds issued by certain institutions as notified by the RBI (these have to non-banking finance companies in the infrastructure sector). For an investor in the highest income tax bracket of 30%, the saving through this deduction can be about Rs 6,000.
WHAT ARE THE VARIETY OPTIONS TO INVEST IN THESE BONDS?
These infrastructure bonds have a maturity of 10 years, but a lock-in period of 5 years. Investors can choose to take a buy-back option where after the initial lock-in the investor can ask the issuer to buy-back his/her bonds.
Investors also have the option where the interest is paid annually (non-cumulative option) or can choose the option where the interest is compounded annually but paid out at the end of the holding period on a cumulative basis. The following is a list of the 4 varieties available, that offer you flexibility in terms of the buy back option and when you want your interest income to be paid:
