India Infrastructure Finance Company Limited
Issue Period: 26 Dec 2012 to 11 Jan 2013
Key Benefits:
- Credit Ratings: AAA by CARE, AAA (Stable) by ICRA and BRICKWORK
- Interest on these Bonds is Tax-Free, no TDS is applicable, Wealth Tax is not levied
- No lock in period and no upper limit on investment amount
- Issue Size: Rs 1,500 Crore with an option to retain oversubscription upto Rs 9,215 Crore
- Additional Coupon Rate – Category – IV Applicants – 0.50% p.a.
- IIFCL is a Government of India undertaking
Issue Structure: Issue of Tax Free Secured Redeemable Non Convertible Bonds
| Options / Series of Bonds |
Series 1 |
Series 2 |
Series 3 |
| Tenor |
10 years |
15 years |
20 years |
| Coupon Rate % p.a. (Category I, II and III) |
7.19 |
7.36 |
7.40 |
| Additional Coupon Rate % p.a. (Category IV) |
0.50 |
0.50 |
0.50 |
| Total Coupon Rate % p.a. (Category IV) |
7.69 |
7.86 |
7.90 |
| Frequency of Interest payment |
Annual |
Annual |
Annual |
| Face Value / Issue Price per Bond |
Rs 1,000 |
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| Minimum Application |
Rs 5,000 (in multiples of Rs 1,000 thereafter) |
||
| Issuance |
Physical and Demat mode |
||
| Interest on application % p.a. |
As per coupon rate applicable to investor category |
||
| Interest on refund % p.a. |
5.0 |
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| Proposed to be listed on |
BSE |
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Basis of Allotment: On first come first serve basis
|
Investor Category |
I – Institutional |
II – Non Institutional |
III – HNI (more than 10 lacs) |
IV – Retail (upto and including 10 lacs) |
|
Issue allocation |
15% |
15% |
30% |
40% |
- When Bonds held by the original allottees of Category IV are sold / transferred, coupon rate will be revised to the coupon rate for Category I, II & III investors. Refer to details.
- Application cannot be made by Non-resident Indians and Foreign nationals.
STATEMENT OF TAX BENEFITS
Under the current tax laws, the following possible tax benefits, inter alia, will be available to the Bond Holder. This is not a complete analysis or listing of all potential tax consequences of the subscription, ownership and disposal of the Bond, under the current tax laws presently in force in India. The benefits are given as per the prevailing tax laws and may vary from time to time in accordance with amendments to the laws 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 interpretation of provisions where under the contents of his statement of tax benefit is formulated may be considered differently by income tax authority, government, tribunals or court. We are not liable to the Bond Holder in any manner for placing reliance upon the contents of this statement of tax benefits.
A. INCOME TAX
1. Interest from Bond do not form part of Total Income.
a) in exercise of power conferred by item (h) of sub clause (iv) of clause (15) of Section 10 of the Income Tax Act, 1961 (43 of 1961) (hereinafter referred to as ‘Act’) the Central government vide notification no. 46 /2012. F. No. 178/60/2012-(ITA.1) dated Ncvember 06, 2012 authorized India Infrastructure Finance Company Limited (`the issuer”) to issue during the Financial year 2012-13, tax free, secured, redeemable, non-convertible bonds for the aggregate amount of Z 10,000 Crores subject to the following conditions namely –
i) The following shall be eligible to subscribe to the bonds:
a. Retail Individual Investors (RIB;
b. Qualified Institutional Investors (QIBs);
c. Corporates;
d. High Net worth Individuals (HNIs).
ii) It shall be mandatory for the subscribers of such bonds to furnish their Permanent Account Number to the issuer.
iii) The tax benefits under the aforesaid section 10 shall be admissible only if the holder of such bonds registers his or her or it’s name and the holding with the issuer.
iv) The tent re of the bonds shall be ten, fifteen or twenty years.
v) At least 75% of the aggregate amount of bonds issued by the issuer shall be raised through public issue and 40% of such public issue shall be earmarked for retail investors.
vi) There shall be a ceiling c n the coupon rates based on the reference Government Security (G-Sec) rate. The ceiling coupon rate for AA rated issuers shall be reference G-Sec rate less 50 basis points in case of Retail Individual Investors (RIB; and reference G-Sec rate less 100 basis points in case of other investor segments like Qualified Institutional Buyers (QIBs), Corporates and High Net Worth Individuals (HNIs); in case the rating of the issuer entity is above AA, a reduction of 15 basis points shall be made i n the ceiling rate, as compared to the ceiling rate for AA rated entities as given above. The higher rate of interest, applicable to retail investors, shall not be available in case the bonds are transferred, except in case of transfer to legal heir in the event of death of the original investor.
The term “reference G-Sec rate” used above would be the average of the base yield of G-Sec for equivalent maturity reported by Fixed Income Money Market and Derivative Association of India (FIMMDA), on a daily basis (working day) prevailing for two weeks ending on Friday immediately preceding the week of filing of the final prospectus with the Exchange or Registrar of Companies (ROC) in case of public issue and the issue opening date in case of private placement.
vii) In the case of privy to placement, the total issue expense shall not exceed 0.2% of the issue size and in case of public issue it shall not exceed 0.5% of the issue size; The brokerage shall be limited to: (a) 0.05% in case of QIB, (b) 0.1% in case of Corporates, (c) 0.15% in case of HNI and (d) 0.75% in case of RII.
Explanation (meaning of the terms mentioned above) :
a. Qualified Institutional Buyers (QIB) shall have the same meaning as assigned to them in the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
b. Retail Individual Investors (RIB means those individual investors, Hindu Undivided Family (through Karta), and Non Resident Indians (NRIs), on repatriation as well as non repatriation basis, applying for up to Rs. 10 lakhs in each issue ; and individual investors investing more than Rs. 10 lakhs shall be classified as High Net Worth Individuals.
c. The bonds issued to NRIs shall be subject to the provisions of Notification No. FEMA 4/2000-RB dated 3rd May, 2000 and Notification No. FEMA 20/2000-RB dated May 3, 2000, issued under clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999, as amended from time to time.
d. The credit rating referred to above, shall mean the credit rating, as assigned by a credit rating agency which is approved by the Securities and Exchange Board of India as well as the Reserve Bank of India and where an entity has been rated differently, by more than one rating agency, the lower of the two ratings shall be considered.
b) Section 10(15)(iv)(h) to be read with Section 14A(1) of the Act provides that in computing the total income of previous year of any person, interest payable by any public sector company in respect of such bonds or debentures and subject to such conditions, including the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may, by notification in the Official Gazette, specify in this behalf shall not be included;
Section 2(36A) of the Act defines —Public Sector Company means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the companies Act, 1956 (1 of 1956).
c) Accordingly, pursuant to the aforesaid notificat on nterest from bond will be exempt from income tax.
d) Since the interest Income on these bonds is exempt, no Tax Deduction at Source is required.
2. CAPITAL GAIN
a) Under section 2 (29A) of the Act, read with section 2 (42A) of the Act, a listed Bond is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer.
Under section 112 of the Income Tax Act, 1961, capital gains arising on the transfer of long term capital assets being listed securities are subject to tax at the rate of 20% of capital gains calculated after reducing indexed cost of acquisition or 10% of capital gains without indexation of the cost of acquisition. The capital gains will be computed by deducting expenditure incurred wholly and exclusively in connection with such transfer and cost of acquisition/indexed cost of acquisition of the bonds from the sale consideration.
However as per third proviso to section 48 of the Act, benefits of indexation of cost of acquisition under second proviso of section 48 of the Act is not available in case of bonds and debenture, except capital indexed bonds. Thus, long term capital gain tax can be considered at the rate of 10% on listed bonds without indexation.
Securities Transaction Tax (“STT”) is a tax being levied on all transactions in specified securities done on the stock exchanges at rates prescribed by the Central Government from time to time. STT is not applicable on transactions in the Bonds.
In case of an Individual or HUF, being a resident, where the total income as reduced by the long term capital gains is below the maximum amount not chargeable to tax i.e. ! 2,00,000 in case of all individuals, ! 2,50,000 in case of resident senior citizens and Z 5,00,000 in case of resident very senior citizens, the long term capital gains shall be reduced by amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of ten per cent in accordance with and the proviso to sub-section (1) of section 112 of the Act read with CBDT Circular 721 dated September 13, 1995.
2% education cess and 1% secondary and higher education cess on the total income tax (including surcharge for corporate only) is payable by all categories of tax payers.
b) Short-term capital gains on the transfer of listed bonds, where bonds are held for a period of not more than 12 months would be taxed at the normal rates of tax in accordance with and subject to the provision of the Act.
The provisions related to minimum amount not chargeable to tax, surcharge and education cess described in paragraph 2(a) above would also apply to such short-term capital gains.
c) Exemption u/s 54EC of the Act:
Under section 54EC of the Act and subject to the conditions and to the extent specified therein, long term capital gains arising to the bondholders on transfer of their bonds in the company shall not be chargeable to tax to the extent such capital gain are invested in certain notified bonds within six month from the date of transfer. If only part of the capital gains is so invested, the exemption shall be proportionately reduced. However, if the said notified bonds are transferred or converted into money within a period of three years from their date of acquisition, the amount of capital gain exempted earlier would become chargeable to tax as long term capital gain in the year in which such bonds are transferred or converted into money. Where the benefit of section 54 EC of the Act has been availed of on investments in the notified bonds, a deduction from income with reference to such cost shall not be allowed under section 80C of the Act.
d) As per the provisions of section 54F of the Act and subject to conditions specified therein, any long-term capital gains (not being residential house) arising to Bond Holder who is an Individual or Hindu Undivided Family, are exempt from capital gains tax if the entire net sales considerations is utilized, within a period of one year before, or two years after the date of transfer, in purchase of a new residential house, or for construction of residential house within three years from the date of transfer. If part of such net sales considerations is invested within the prescribed period in a residential house, then such gains would be chargeable to tax on a proportionate basis.
Provided that the said Bond Holder should not own more than one residential house at the time of such transfer. If the new residential house in which the investment is made transferred within a period of three years from the date of its purchase or construction, the amount of capital gains exempted from tax earlier would become chargeable to tax as long term capital gains in the year in which such new residential house is transferred. Similarly, if the bond Holder purchases within a period of two years or constructs within a period of three years after the date of transfer of capital assets, another residential house (other than the new residential house referred above), then the original exemption will be taxed as capital gains in the year in which the additional residential house is acquired.
e) The income by way of short term capital gains or long term capital gains (not covered under Section 10(38) of the Act) realized by Foreign Financial Institutions on sale of security in the Company would be taxed at the following rates as per Section 115AD of the Act.
• Short term capital gains- 30% (plus applicable surcharge and education cess)
• Long term capital gains- 10% without cost of indexation (plus applicable surcharge and education cess)
As per section 90(2) of the Act, the provision of the Act would not prevail over the provision of the tax treaty applicable to the non¬resident to the extent such tax treaty provisions are more beneficial to the non resident. Thus, a non resident can opt to be governed by the beneficial provisions of an application tax treaty.
f) Under section 195 of the Act, Income Tax shall be deducted from sum payable to non residents on the long term capital gain and short term capital gain arising on sale and purchase of bonds at the rate specified in the Finance Act of the relevant year or the rate or rates of income tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, as the case may be.
g) However under section 196D, No deduction of tax shall be made from income arising by way of capital gain to Foreign Institutional Investors.
3. Taxability under the head Profit and Gains from business & profession:
In case the Bonds are held as stock in trade, the income on transfer of bonds would be taxed as business income or loss in accordance with and subject to the provisions of the Act.
4. Taxation on gift:
As per section 56(2)(vii) of the Act, in case where individual or Hindu undivided Family receives bond from any person on or after 1 October, 2009.
A. without any consideration, aggregc to fair market value of which exceeds fifty thousand rupees, then the whole of the aggregate fair market value of such bonds/debentures or;
B. for a consideration which is less than the aggregate fair market value of the Bond by an amount exceeding fifty thousand rupees, then the aggregate fair market value of such property as exceeds such consideration;
shall be taxable as the income of the recipient.
Provided further that this clause shall not apply to any sum of money or any property received
a. from any relative; or
b. on the occasion of the marriage of the individual; or
c. under a will or by way of inheritance; or
d. in contemplation of death of the payer or donor, as the case may be; or
e. from any local authority as defined in the Explanation to clause (20) of sec tion 10; or
f. from any fund or foundation or university or other educational institution or hospital or other medical institution or any ti ust or institution referred to in clause (23C) of section 10; or
g. from any trust or institution registered under section 12AA.
B. WEALTH TAX
Wealth. tax is not levied on investment in bond under section 2(ea) of the Wealth. tax Act, 1957.
C. PROPOSALS MADE IN DIRECT TAXES CODE
The Hon’ble Finance Minister has presented the Direct Tax Code Bill, 2010 (“DTC Bill”) c n August 30, 2010, which was proposed to be effective from April 1, 2012. However, in the Budget for 2012-13, the Finance Minister said that “we received the report of the Parliamentary Standing Committee on March 9, 2012. We will examine the report expeditiously and take steps for the enactment of DTC at the earliest.”
Thus, the DTC Bill is likely to be presented before the Indian Parliament thereafter. Accordingly, it is currently unclear what effect the Direct Tax Code would have on the investors.
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