PFS Long Term Infrastructure Bond – Tax Benefits and issue details

TAX BENEFITS UNDER THE INCOME TAX ACT, 1961

Under the current tax laws (existing as well as proposed) the following tax benefits, inter alia, will be available to the Bond Holder as mentioned below. The benefits are given as per the prevailing tax laws and may vary from time to time in accordance with amendments to the law or enactments thereto. The Bond Holder is advised to consider in his own case the tax implications in respect of subscription to the Bond after consulting his tax advisor as alternate views are possible. PFS or the Trustees shall not be liable to the Bond Holder in any manner for placing reliance upon the contents of this statement of tax benefits.

A. INCOME TAX:

Tax Benefits to the Resident Bond Holders

According to section 80CCF an amount not exceeding rupees twenty thousand invested in long term infrastructure Bonds shall be allowed to be deducted from the total income of an Individual or Hindu Undivided Family. This deduction shall be available over and above the aggregate limit of ~ One Lakh as provided under sections 80C, 80CCC and 80CCD read with section 80CCE.

Section 80CCF reads as “In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, the whole of the amount, to the extent such amount does not exceed twenty thousand rupees, paid or deposited, during the previous year relevant to the assessment year beginning on the 1st day of April, 2011, as subscription to long­term infrastructure Bonds as may, for the purposes of this section, be notified by the Central Government”

Taxability of Interest

Taxability of interest on Bonds would depend upon the method of accounting adopted by the resident Bondholder as mentioned in the provisions of the IT Act.

Withholding Tax

No income tax is deductible at source on interest on Bonds as per the provisions of section 193 of the I.T. Act in respect of the following:

a)      In case the payment of interest on Bonds to resident individual Bond Holder by company by an account payee cheque and such Bonds being listed on a recognized stock exchange in India, provided the amount of interest or the aggregate of the amounts of such interest paid or likely to be paid during the financial year does not exceed ~2,500;

b)         When the Assessing Officer issues a certificate on an application by a Bond Holder on satisfaction that the total income of the Bond Holder justifies nil/lower deduction of tax at source as per the provisions of Section 197(1) of the I.T. Act;

c) When the resident Bond Holder (not being a company or a firm or a senior citizen) submits a declaration to the payer in the prescribed Form 15G verified in the prescribed manner to the effect that the tax on his estimated total income of the financial year in which such income is to be included in computing his total income will be ‘nil’ as per the provisions of Section 197A (1A) of the I.T Act. Under Section 197A (1B) of the I.T Act, Form 15G cannot be submitted nor considered for exemption from deduction of tax at source if the aggregate of income of the nature referred to in the said section, viz. dividend, interest, etc as prescribed therein, credited or paid or likely to be credited or paid during the financial year in which such income is to be included exceeds the maximum amount which is not chargeable to tax. To illustrate, the maximum amount of income not chargeable to tax in case of individuals (other than women assesses and senior citizens) and HUFs is ~1,80,000/-, in case of women assesses is ~190,000/- , in case of senior citizen is ~2,50,000/- and in case of super senior citizens is ~5,00,000/- for financial year 2011-12. Senior citizens, who are 60 or more years of age at any time during the financial year, enjoy the special privilege to submit a self declaration to the payer in the prescribed Form 15H for non-deduction of tax at source in accordance with the provisions of section 197A (1C) of the I.T. Act even if the aggregate income credited or paid or likely to be credited or paid exceed the maximum amount not chargeable to tax i.e. ~2,50,000/- in case of senior citizens and ~5,00,000/- in case of super senior citizens for FY 2011-12, provided tax on his estimated total income of the financial year in which such income is to be included in computing his total income will be nil.