Financial institution IFCI’s long-term infrastructure bonds have evoked a strong response among retail investors and Hindu Undivided Families (HUFs), according to distributors of financial products. These bonds are the first of its kind since the finance minister announced a new income tax section — 80CCF. — which entitles a tax payer to exemptions on money invested in infrastructure bonds. Market participants expect a flood of bond issuances in the coming days from institutions that qualify as infrastructure financing companies. And these are expected to be a hit among retail investors, because of attractive rates of interest as well as tax exemptions.
“On an investment of Rs 20,000, an individual in the 30% tax bracket can save Rs 6,000 of tax and earn an annual interest of 7.85-7.95%. So, it is a double benefit,” says Surendra N Tare, senior vice-president-distribution & channel sales, Almondz Global Securities.
According to a government notification last Friday, the bonds will have a minimum tenure of 10 years, and investors will be locked in for five years. IFCI is planning to raise about Rs 100 crore, including a green-shoe option of Rs 50 crore. The arrangers to the issue include Bajaj Capital, Religare Capital Markets, Kotak Mahindra Bank and RR Investor Capital Services.
According to the bankers to the issue, it becomes difficult to distribute these bonds to retail investors, if the issue is a large one. That’s because arrangers can’t advertise these bonds, since these are a private placement. IFCI has already begun a private placement of unsecured redeemable, non-convertible long-term infrastructure bonds of up to Rs 20,000 for this financial year. The interest rate is 7.85% for buyback option and 7.95% for non-buyback option, under cumulative and non-cumulative (September 15 yearly) interest schemes. However, under the 7.85% bonds with a buyback option, the investor can redeem the bonds after the fifth year. The buyback starts from 2015 to 2019. The 5-year lock-in is compulsory to avail of the 80 CCF benefit.
Those who have already exhausted their annual tax savings limit of Rs 1 lakh will be keenly looking at these bonds. The exemption for investments in infrastructure bonds is in addition to the investments of Rs 1 lakh in tax-saving instruments under Section 80C, 80CCC, 80CCD. After the lock-in period, an investor can take loans against these bonds.
Mr Tare adds that the investor will be allowed to exit either through the secondary market or through a buyback facility. According to media reports, LIC is also looking at issuing insurance-bearing bonds worth at least Rs 5,000 crore. It is planning to offer free life cover for all buyers of its forthcoming infrastructure bonds.
Apart from LIC, Infrastructure Development Finance Corporation (IDFC) could raise Rs 2,000-2,500 crore in FY11 through infrastructure bonds to investors. Apart from institutions like IFCI, LIC and IDFC, bonds can be issued by a non-banking financial company, classified as an infrastructure finance company by RBI.
Key features and notification of IFCI Infrastructure Tax Saving Bonds u/s 80CCF is given below
- This bonds will be called “Long Term Infrastructure Bond”
- Application can be by individual or HUF only but not by minor through Gurdians.
- An Individual or HUF can invest Rs. 20000/- in a Financial year to avail deduction under section 80CCF
- Rs. 20000/- limit is in addition to 100000/- limit of section 80C, 80CCC, 80CCD
- Tenure of the Bonds will be 10 Years.
- However Lock in period is 5 years ,after 5 years investor can withdraw money from the bonds
- After lock in period, Investor can take loan against these Bonds.
- Self attested pan copy of 1st holder is compulsory .
- Bonds are not tax free. Interest is taxable in the hands of investor. But no TDS will be deducted from interest.
- Demat is compulsory. Joint holders can apply as per same order of Demat a/c . Application without demat a/c details will be rejected.
- Minimum Application amount is Rs 5000/- & multiples there off for each option.
- Maximum benefit to an investor shall be Rs. 20,000/- under section 80CCF of the Income Tax Act, 1942
Frequently Asked Questions on IFCI Long Term Infrastructure Bonds
1. What is the Tax Treatment of interest on these Bonds?
The interest received on these bonds shall be treated as income from any other source and shall form part of the total income of the assessee in that financial year in which they are received.
2. Who are the eligible investors?
Only Resident Indian Individuals (Major) and HUF can invest in these bonds.
3. Can a Minor apply for subscription to these bonds?
A minor is not eligible to apply for subscription to these bonds.
4. Are these infrastructure bonds Tax Free?
No, the interest received in these bonds are not tax free. The investor is liable to pay tax on the interest received.
5. Will TDS be deducted on these bonds?
No TDS shall be deducted on the interest received as these bonds are issued compulsorily in Demat mode and shall be listed on Bombay Stock Exchange.
6. I don’t have Demat Account. Can I apply?
The bonds shall be compulsorily issued in Demat mode, so investors without demat shall not be eligible.
7. I only have a joint De-mat account. Can I apply in my own name only?
The name of applicant shall be same as the holders of Demat account. In case of single applicant the demat account shall also be held in the name of the same single applicant.
8. Can I apply in joint names?
Yes application can be made in joint names with a maximum of three applicants, however the demat account shall also be held in the joint names and order of applicant shall be the same as appearing in the demat account.
9. What is the maximum amount for which the benefit u/s 80CCF be availed?
Maximum benefit to an investor shall be Rs. 20,000/- under section 80CCF of the Income Tax Act, 1942
10. What would happen if I apply amount more than Rs. 20,000/-?
The allotment shall be made for the sum applied, however the benefit under section 80CCF may only be availed for a maximum sum of Rs.20,000/-
11. Can I invest in all the four option?
Yes an applicant may subscribe to all the four options but the minimum application under each option shall be one bond i.e. Rs.5000/-
12. What is the benefit of investing in Tax Free Infrastructure Bonds if they offer the same tax benefit?
The Tax exemption benefit on a sum of Rs. 20,000/- is over and above Rs. 1,00,000/- benefit under section 80C, 80CCC and 80CCD
13. What is the tenure & lock-in period of these Tax Free Infrastructure Bonds?
The maximum maturity period of these bonds shall be 10 years however there shall be a buy back option at the end of 5th year onwards. After the end of 5th year the investor shall have the option to participate in the buy back offer by the issuer which shall be open between 16th August to 31st August every year from the end of 5th year till the maturity of the bonds.
14. Who can offer these Long Term Infrastructure Bonds?
The entities like LIC, IDFC, IFCI and other NBFCs which are classified as Infrastructure Finance Companies by RBI shall be allowed to issue these long term infrastructure bonds.
- 15. I Don’t have a PAN card. Can I still apply for subscription?
PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.
16. How will I get my interest on the due date?
The interest shall be credited to the respective Bank registered with the Demat account through ECS on the due date for interest payment. And if the due date is a public holiday then the next working date.
17. Can I get loan on these bonds?
Yes, these bonds may be mortgaged or pledged to avail the loans after the lock in period.
18. Where shall I submit the application forms?
The application form may be submitted at the office of the arranger or at the office of IFCI.
19. Who shall pay the interest and repay the Principle amount?
IFCI Limited shall pay the interest on these bonds and also the principle amount to the investor upon maturity of the bonds or at the time of buy back
20. Can I apply in joint names?
Yes, application can be made in joint names but the tax benefit shall only be availed by the first applicant.
21. Who would get the interest in case of the joint application?
In case of joint application the interest shall be paid to the account of the first applicant only.
Do’s and Don’ts
Do’s
a) Check if you are eligible to apply
b) Sign the application wherever required
c) Attach a copy of self attested PAN Card along with the application form
d) In case of HUF applicant kindly put the stamp of HUF on the application form
e) Ensure that you mention the PAN no. allotted under the IT Act on the application
f) Check that you have mentioned correct DP Name, DP ID and Client ID on the application form
g) Check there is no name mismatch with the Demat account
h) In case of joint application check that the name on application form appears in the same order as it appears in Demat account
i) Read all the instruction carefully and complete the application form
j) Application shall be signed by Karta in case of HUF
Don’ts
a) Do not apply for an amount lower than the minimum application
b) Do not pay the application money in cash
c) Do not submit unsigned application
IFCI Tax Exemption Long Term Infrastructure Bonds- Series I
PRIVATE PLACEMENT SUMMARY TERM SHEET
| Issuer | IFCI Limited |
| Offering | 1,00,000 Unsecured, Redeemable, Non-Convertible, Taxable Bonds of Rs. 5,000/- each aggregating to Rs. 50 Crore with a green-shoe option to retain over-subscription for issuance of additional Infrastructure Bonds |
| Type | Private Placement basis |
| Instrument | Unsecured, Redeemable, Non-Convertible, Taxable Bonds having benefits under section 80 CCF of the Income Tax, 1961 for long term Infrastructure Bonds |
| Rating | BWR AA- by BRICKWORK RATINGS INDIA PVT LIMITED |
| Eligible Investors | Resident Indian Individual (Major) and HUF through Karta of the HUF |
| Security | Unsecured |
| Face Value | Rs. 5,000/- per bond |
| Issue Price | At par (Rs. 5,000/- per bond) |
| Minimum Subscription | 1 Bond and in multiples of 1 Bond thereafter, |
| Tenure | 10 years, with or without buyback option after five years |
| Options for Subscription | The Bonds are proposed to provide the following options- • Option I – Non-cumulative and Buyback after 5 years • Option II – Cumulative and Buyback after 5 years • Option III – Non-cumulative and no Buyback • Option IV – Cumulative and no Buyback |
| Redemption / Maturity | At par at the end of 10th year from the deemed date of allotment. For Cumulative Option, at par with cumulated interest thereon. |
| Coupon rate | • Option I & II- 7.85% p.a. • Option III & IV – 7.95% p.a. |
In case of cumulative bonds, interest shall be compounded annuallyListing Proposed to be listed on BSETrusteeAxis Trustee Services LimitedDepository National Securities Depository Ltd. and Central Depository Services (India) Ltd.RegistrarsBeetal Financial & Computer Services (P) Ltd.Mode of PaymentInterest payment will be made through ECS/At Par Cheques/Demand DraftsIssuanceDemat form onlyTradingDemat mode onlyIssue Open DateAugust 9, 2010Issue Close DateAugust 31, 2010
• The issuer would have an option to pre-close the issue by giving 1 day notice to the ArrangersDeemed Date of AllotmentSeptember 15, 2010
For further information, please contact Mr Gopal Singh/ Mr Sanjiv Kumar , IFCI Ltd, IFCI Tower, 61 Nehru Place at 91-11-41732435/2489 or gopal.singh@ifciltd.com/sanjiv.kumar@ifciltd.com.
The applicants can download the application forms and deposit completed application forms at the designated bank branches.
To download Application Form, please click here.
To download Information Memorandum,click here .
The applicants can download the application forms and deposit completed application forms at the designated bank branches.
HOW TO PURCHASE THEESE BONDS ON LINE.
cAN INTERST BE PAID EVERY YEAR AND SHOW IN INCOME TAX RETURN ACCORDINGLY.
SIRS,
CAN ANYBODY HELP ME TO SOLVE THE PROBLEM OF NOT FILING B/S TO CHARITY COMMISSIONER SINCE MANY YEARS. THIS WAS NOT KNOWN TO THE EARLIER BODY,NOW I WANT TO FINISH. WHAT IS THE PENALTY, HOW TO APPROACH TO THE COMMISSION, WHAT ARE THE CONSEQUENCES –
PLEASE GUIDE ME.
CS