Bond refers to a security issued by a company, financial institution or government which offers regular or
fixed payment of interest in return for borrowed money for a certain period of time.By purchasing a bond, an
investor loans money for a fixed period of time at a predetermined interest rate. While the interest is paid
to the bond holder at regular intervals, the principal amount is repaid at a later date, known as the maturity
date. While both bonds and stocks are securities, the principle difference between the two is that bond holders
are lenders, while stockholders are the owners of the organization.
Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed,
whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity
(i.e., bond with no maturity). Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is
the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to
finance long-term investments, or, in the case of government bonds, to finance current expenditure.
Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds.
Bonds must be repaid at fixed intervals over a period of time
TAXFREE BONDS (Salient Features)
- Eligibility for
The Bonds may be held by -
- 1An individual, not being a Non-Resident Indian (NRI)
In his or her individual capacity
In an individual capacity on joint basis
In an individual capacity on anyone or survivor basis
On behalf of a minor as father / mother / legal guardian
- 2A Hindu Undivided Family
- 3Charitable Institution
'Charitable Institution' to mean a Company registered under Section 25 of the Indian
Companies Act 1956.
In an individual capacity on joint basis.
An institution which has obtained a Certificate of Registration as a charitable
institution in accordance with a law in force;
Any institution which has obtained a certificate from Income Tax Authority for the
purpose of Section 80G of the Income Tax Act, 1961.
- 4"University" means a university established or incorporated by a Central,
State or Provincial Act, and includes an institution declared under section 3 of
the University Grants Commission Act, 1956 (3 of 1956), to be a university for the
purposes of that Act.
- Limit of Investment
There is no maximum limit for investment in the Bonds.
- Tax Treatment
- 1Income-Tax: Interest on the Bonds will be taxable under the Income-Tax Act,
1961 as applicable according to the relevant tax status of the bond holder.
- 2Wealth Tax: The Bonds will be exempt from Wealth-tax under the Wealth- Tax
- Issue Price
- 1The Bonds will be issued at par i.e. at Rs.100.00 percent.
- 2The Bonds will be issued for a minimum amount of Rs. 1000/- (face value)
and in multiples thereof. Accordingly, the issue price will be Rs.1000/- for every
Subscription to the Bonds will be in the form of Cash/Drafts/Cheques. Cheques or
drafts should be drawn in favour of the Receiving Office, specified in paragraph
10 below and payable at the place where the applications are tendered.
- Date of Issue
- 1The Bonds will be issued with effect from 21st April 2003.
- 2The date of issue of the Bonds in the form of Bond Ledger Account will be
the date of receipt of subscription in cash or the date of realisation of draft/cheque.
- 1The Bonds will be issued and held at the credit of the holder in an account
called Bond Ledger Account (BLA).
- 2New Bond Ledger series with the prefix (TB) are to be opened. All investment
in 8% Savings (Taxable) Bonds by an existing BLA holder will be viewed as a new
investment under a new BLA.
- 3The Bonds in the form of Bond Ledger Account will be issued by and held
with designated branches of the agency banks and SHCIL as authorised by Reserve
Bank of India in terms of paragraph 10 below.
- 4The Certificate of Holding in respect of Bond Ledger Account will be issued
in Form TBX or Form TBY as applicable for non-cumulative and cumulative investments
- 5The Certificate of Holding in respect of cash applications may be issued
on the same day as per the extant instructions.
- 1Applications for the Bonds may be made in Form ‘A’ (Annex 2) or in any other
form as near as thereto stating clearly the amount and the full name and address
of the applicant.
- 2Applications should be accompanied by the necessary payment in the form
of cash/drafts/cheques as indicated in paragraph 6 above.
- 3Applicants who have obtained exemption from tax under the relevant provisions
of the Income Tax Act, 1961, shall make a declaration to that effect in the application
(in Form 'A') and submit a true copy of the certificate obtained from Income-Tax
- Receiving Offices
Applications for the Bonds in the form of Bond Ledger Account will be received at:
- 1Authorised Branches of State Bank of India, Associate Banks, Nationalised
Banks, four private sector banks and SHCIL as specified in the Annex 3.
- 2Any other bank or branches of the banks and SHCIL as may be specified by
the Reserve Bank of India in this regard from time to time.
A sole holder or a sole surviving holder of a Bond, being an individual, may nominate
in form B (Annex – 4) or as near thereto as may be, one or more persons who shall
be entitled to the Bond and the payment thereon in the event of his/her death.
The Bond in the form of Bond Ledger Account shall not be transferable.
- 1The bond will be issued in cumulative and non-cumulative form, at the option
of the investor.
- 2The Bond will bear interest at the rate of 8% per annum. Interest on non-cumulative
bonds will be payable at half-yearly intervals from the date of issue in terms of
paragraph 7 above. Interest on cumulative bonds will be compounded with half-yearly
rests and will be payable on maturity along with the principal. In the latter case,
the maturity value of the Bonds shall be Rs.1601/- (being principal and interest)
for every Rs.1,000/-(Nominal). Interest to the holders opting for non-cumulative
Bonds will be paid from date of issue in terms of paragraph 7 above upto 31st July/31st
January, as the case may be and thereafter at half-yearly for period ending 31st
July/31st January on 1st August and 1st February. Interest on Bond in the form of
"Bond Ledger Account" will be paid, by cheque/warrant or through ECS by credit to
bank account of the holder as per the option exercised by the investor/holder.
- Advances / Tradeability
The Bonds shall not be tradeable in the secondary market and shall not be eligible
as collateral for loans from banks, financial Institutions and Non Banking Financial
Companies, (NBFC) etc.
The Bonds shall be repayable on the expiry of 6 (Six) years from the date of issue.
No interest would accrue after the maturity of the Bond.
Section 80CCF Income Tax Act, 1961
New Section Introduced in Income Tax Act 2011: Section 80CCF was introduced in the
Income Tax Act, 1961 in the budget of February 2010. As per this section investments
made in notified infrastructure bonds are exempt from tax up to maximum of Rs 20,000
per year. Section 80CCF allows individuals to invest Rs. 20,000 in infrastructure
bonds, and reduce this amount from taxable income. This exemption is in addition
to the Rs. 100,000 deduction under section 80C (Investment in instruments like ELSS
Mutual Funds, Life Insurance, Provident Fund etc).
Interest Income is Taxable: The interest income from infrastructure bond is taxable.
The interest will be added to investors taxable income. This means even though the
investment in these bonds is exempt from tax (maximum Rs 20,000). interest income
is not. This means investment under section 80CCF is advisable only after the investor
has completely exhausted Rs One Lakh investment under section 80C. The funds raised
through these bonds will be utilised towards “infrastructure lending” as defined
by the RBI in the regulations issued by it from time to time, after meeting the
expenditures of, and related to the issue. These infrastructure bond issues are
part of the government’s effort to mobilise money to part-fund the massive $1-trillion
infrastructure spend it has planned for the Twelfth Plan.
Tax Benefits: Under section 80CCF of the Income Tax Act, Rs 20,000 per annum paid
or deposited as subscription to long term infrastructure bonds shall be deducted
in computing the taxable income. This is over and above Rs 1,00,000 tax benefit
available under section 80C, 80CCC and 80CCD.
Pros: The limit of Rs 20,000 per annum is in addition to Sections 80C, 80CCC and
80CCD. Hence, it is advisable to consider applying in this issue.
Cons: The bonds are locked in for five years, so there is no exit in case you need
the money midway which restricts liquidity.
Frequently Asked Questions on Infrastructure Bonds
- Who are the eligible
Only Resident individuals and HUF can invest in these bonds.
- What is the Tax
benefit of investing in IFCI Infrastructure Bonds ?
The Tax exemption benefit on a sum of Rs. 20,000/- u/s 80CCF is over and above Rs.
1,00,000/- benefit under section 80C, 80CCC and 80CCD
- What is the Tax
Treatment on Interest of 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.
- 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.
- What would happen
if the client applies for more than Rs. 20,000/- ?
The allotment shall be made for the sum applied. However, the benefit under section
80CCF may be availed for a maximum sum of Rs.20,000/- only.
- Can a Minor apply
for subscription to these bonds ?
A minor is not eligible to apply for subscription to these bonds.
- Can a client
apply in joint names ?
Yes application can be made in joint names but the tax benefit may only be availed
by the first applicant.
- Who would get
the Tax Benefit & interest in case of the joint application ?
In case of joint application the Tax Benefit & Interest shall belong to the first
- Can a client
invest in more than one option ?
Yes an applicant may subscribe to all the four options but the minimum application
under each option shall be Rs.5000/-
- 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 issuer shall have the option to buy back the bonds. The Investor has to opt
for the desired option at the time of applying for the Bonds.