What Is The Difference Between Tax Free Bonds and Long Term Infrastructure Bonds?

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The time of investing under schemes which help you save tax is approaching. Which is why people have started exploring new investment avenues which can reduce there taxable income. 'Tax Free Bonds' and 'Long Term Infrastructure Bonds' are two good investment options available which can help you save tax. But most of the people do not know the difference between both these terms and how much one can save by investing under these investment alternatives. So lets have a discussion to understand the difference between 'Tax Free Bonds' and 'Long Term Infrastructure Bonds'.

 

What Are Tax Free Bonds?

Tax free bonds are bonds issues by Government entities, to arrange funds for building country's infrastructure. Few designated entities which issue tax free bonds in India includes National Highway Authority Of India (NHAI) tax free bonds and PFC. These bonds generally offers a return of around 8% and With a maturity period of around 10 to 15 years.

What Are Long Term Infrastructure Bonds?

Long Term Infrastructure Bonds are bonds issues by

• Industrial Finance Corporation of India Ltd.
• Life Insurance Corporation of India
• Infrastructure Development Finance Company Limited
• A Non-Banking Finance Company (NBFC) classified as an Infrastructure Finance Company by the Reserve Bank of India (RBI)

In 2010, the government of India introduced a new section under Income tax act 1961 i.e section 80CCF. This section had been introduced to offer additional income tax deduction on investment up to Rs 20,000 in the financial year 2010-11. This deduction is over and above Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly.

 

Exemption & Deduction Through Tax Free Infrastructure Bonds & Tax Saving Infrastructure Bonds Under Section 80CCF

Tax-Free Bonds	Tax-Saving Bonds
Investment under tax free infrastructure bonds is taxable	Investment under tax saving infrastructure bonds is taxable (deduction upto Rs 20,000 allowed for FY 2011-12)
Interest earned on tax free infrastructure bonds is not taxable (tax free).	Interest earned on tax saving infrastructure bonds is taxable annually.
Tax free bonds offers reasonable returns	Tax saving bonds offers better returns

 

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