Rural Electrification Corporation Limited opens its public issue of tax – free bonds of the face-value of 1,000 each aggregating up to a total of 3,000 crores. The income by way of interest on these Bonds is fully exempt from Income Tax under Section 10(15)(iv)(h) of the Income Tax Act, 1961 and shall not form a part of the total income. The issue has 2 investment options – 8.13% (10 Yrs) & 8.32% p.a.(15 Yrs) for investments upto 1 lakh and 7.93% (10 Yrs) & 8.12% p.a. (15 Yrs) above 1 lakh. The issue starts on March 6, 2012. Allocations will be on a first come first serve basis. The issue has been rated “CRISIL AAA/Stable” by CRISIL, “[ICRA] AAA” by ICRA and “CARE AAA” by CARE.
REC – Tax Free Bonds:
HIGHLIGHTS OF TAX BENEFITS
- The income by way of interest on these Bonds is exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of IT Act.
- There will be no deduction of tax at source from the interest, which accrues to the bondholders on these bonds irrespective of the amount of the interest or the status of the investors.
- Wealth Tax is not levied on investment in Bonds under section 2(ea) of the Wealth-tax Act, 1957.
Please note few changes compared to earlier Tax Free Bonds issuance’s:
1. Individual and HUF applicants applying for any amount up to Rs 5 Lac will be classified under Retail Category (Amended Vide CBDT notification No. 13/2012 F.No.178/56/2011-ITA.1 dated March 6, 2012)
2. Individual and HUF Applicants applying above 5 Lac will be classified under HNI Category. (Amended Vide CBDT notification No. 13/2012 F.No.178/56/2011-ITA.1 dated March 6, 2012)
3. NRI applicants are not allowed
4. With respect to provisions of Sub Section 3 of Section 372A of The Companies Act, 1956, it may be noted that the Reserve Bank of India has vide its notification no. Ref.No.MPD.BC.352/05.03.004/2011-12 dated February 13, 2012, increased the bank rate to 9.50 per cent per annum with effect from the close of business on February 13, 2012. Although the coupon rate offered on the Bonds may be lower than the prevailing bank rate, it may be noted that since these are tax free bonds, the gross/ pre-tax yield to the investors may be higher, depending upon the applicable tax rates. Companies other than banking companies, insurance companies and other Companies as mentioned in Sub Section 8 of Section 372A may however seek independent opinion from their legal counsel about their eligibility to make an application for the Bonds.
5. As per the CBDT notification No. 13/2012 F.No.178/56/2011-ITA.1 dated March 6, 2012, the definition of Category II and Category III stands revised to “above 0.50 million across all series in the issue”& “upto and including Rs.0.50 million i.e. Retail Applicant Limit for this issue revised to 5 lakh from earlier one lakh.