Tuesday, February 21, 2012

IDFC INFRA BONDS- Extra Tax Saving Under Section 80CCF

What are infrastructure bonds?

To channelize long term retail flows into the Infrastructure sector, the Government of India had introduced Section 80CCF under the Income Tax Act, 1961 (‘the Act’). This section provides for an income tax deduction for an individual investor who subscribes in the Long-Term Infrastructure Bonds (‘Bonds’), issued by certain financial institutions.

Presently, individual investors have various options to invest upto 1 lakh into various instruments such as PPF, Insurance, ELSS etc as allowed under sections 80C, 80CCC and 80CCD of the Act.

An investment in infrastructure bonds under Section 80CCF is an additional window to save tax upto 20,000, over and above the 1 lakh limit already available.

Long term Infrastructure Bonds by IDFC

IDFC has come up with its second tranche of Long Term Infrastructure Bonds for financial year 2011 – 12. These Bonds would be for a period of ten year. The company has offered an option to buyback the bonds from the investors at the end of five years. These bonds have got the highest credit rating of (ICRA) AAA by ICRA and Fitch AAA(ind) by Fitch.

Issue opens: January 11, 2012
Issue closes: February 25, 2012

Series 1 2
Face Value 5,000 per Bond

Minimum number of bonds per application

Two Tranche 2 Bonds and in multiples of one Tranche 2 Bond thereafter.
For the purpose fulfilling the requirement of minimum subscription of two Tranche 2 Bonds, an Applicant may choose to apply for two Tranche 2 Bonds of the same series or two Tranche 2 Bonds across different series.
Interest payment Annual Cumulative
Interest Rate 8.70% p.a. N.A.
Maturity Amount per Bond 5,000 11,515
Maturity 10 years from the deemed date of allotment
Yield on Maturity 8.70% 8.70% compounded annually
Buyback Facility Yes
Yield on Buyback 8.70% 8.70% compounded annually
Buyback Date Date following 5 years and one day from the deemed date of allotment
Buyback Amount 5,000 per bond 7,590 per bond
Buyback Intimation Period The period beginning not before nine months prior to the buyback date and ending not later than six months prior to the buyback date

Invest in IDFC Bonds Today

  • The bonds don't attract any TDS in case the investments are in demat form
  • The bonds are available in Demat & Physical form
  • The bonds will be listed on NSE and BSE and can be traded after the 5 year lock-in period
  • Investors can mortgage or pledge these bonds to avail loans after the lock-in period.
  • An investor would need a PAN card to invest in these bonds.
  • The bonds will be issued only to Resident Indian Individuals and HUF
  • An applicant may subscribe to the two series of Bonds offered but the minimum application under each series shall be one bond i.e., 5,000
  • Interest on the Bonds shall be payable on annual or cumulative basis depending on the series selected by the bond holders
  • The interest accrued on the bonds will be credited to the respective bank registered with the demat account through ECS on the due date for interest payment

Issue Structure: The Bonds, with a maturity of ten years, will be issued
in two series.

  • Series-1: Carry a 8.70% coupon, payable annually; with a buyback option#
  • Series-2: Cumulative option, 8.70% coupon, compounded annually; with a
    buyback option#
#: after expiry of lock in

Tax adjusted rate of return *

Tax Rate (%) Tax Benefit adjusted rate of return on Maturity (with Tax Benefits upto 20,000 u/s 80CCF of the Income Tax Act, 1961)
10.30 10.40% 9.88%
20.60 12.40% 11.23%
30.90 14.80% 12.78%
Tax Rate (%) Tax Benefit adjusted rate of return on Buyback (with Tax Benefits upto 20,000 u/s 80CCF of the Income Tax Act, 1961)
10.30 11.51% 11.08%
20.60 14.80% 13.82%
30.90 18.73% 17.03%


All investors proposing to participate in the public issue of the Tranche II Bonds by the Infrastructure Development Finance Company Limited should invest only on the basis of information contained in the Prospectus – Tranche 2 filed with Registrar of Companies, Chennai, Tamil Nadu, on January 3, 2012.

The Prospectus Tranche - 2 is available on the websites of the stock exchanges at www.bseindia.com and www.nse-india.com, the website of the Company at www.idfc.com and the respective websites of the Lead Managers at www.icicisecurities.com, www.jmfinancial.in, www.karvy.com www.hdfcbank.com, www.idfccapital.com and Co-Lead Managers at www.bajajcapital.com, www.rrfcl.com, www.smccapitals.com.

*Note: The Tax Adjusted Rate of Return (TARR) is calculated assuming a gross investment of 20,000 less the relevant tax benefit under Section 80CCF of the Income Tax Act, 1961 available to the investor (varying according to the tax rate applicable to the relevant investor) resulting in a net invested amount. The aggregate of annual or cumulative interest coupon and the redemption amount receivable by the investor, as applicable, discounted over time divided by such net invested amount leads to the TARR.

*Note: The TARR figures provided in the table above are representative only and are subject to the assumptions and qualifications made by the company in arriving at the above mentioned figures. The figures contained in the table above do not in any manner whatsoever constitute financial or tax advice or any recommendation to invest in the tranche 2 bonds. The figures are given as per the prevailing rates of taxation. The investor is advised to consider in his or her own case the tax implications in respect of subscription to the tranche 2 bonds. Investors must consult their tax and financial advisors before making any investments in the tranche 2 bonds. The company is not liable to the investor in any manner for placing reliance upon the contents for calculating TARR as mentioned in the table above.

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