Taxation / News

MAGAZNE | SEP 04, 2013

TAXATION
7$;)5((%21'672%(/$81&+('
Government aIIows 13 firms to Iaunch tax-free bonds to raise Rs 48,000 crore in
FY14
SUNL DHAWAN
Tax-free bonds are back. With just about seven months for this financial year to come to a close, 13
government institutions have been given the nod to launch tax-free bonds and raise an aggregate of
Rs 48,000 crore in 2013-14. These bonds will be tax-free, secured, redeemable and non-convertible.
Though the interest from these bonds will not be taxed, the principal invested does not qualify for
any tax deduction.
Features
The investment can be made under four different
categories:
Retail ndividual nvestors (Rs),
Qualified nstitutional Buyers (QBs),
Corporates,
High net-worth ndividuals (HNs).
The tenure of the bonds will be 10, 15 or 20 years.
Under retail individuals, all individual investors, Hindu
Undivided Families (HUFs) and non-resident ndians
(NRs) on repatriation as well as non-repatriation basis
can buy up to Rs 10 lakh in each issue, while individual
investors investing more than Rs 10 lakh would have to
invest under HN category. Sovereign wealth funds,
gratuity and pension funds can also invest within the
private placement mandate.
Rate of interest
There will be a ceiling on the coupon rates based on
the reference government security (G-sec) rates.
These bonds would be rated by one or more rating
agencies. For AAA-rated issuers, the ceiling coupon
rate will be the reference G-sec rate minus 55 basis
points in case of Rs. However, in case the rating of
the issuer is AA, the ceiling rate will be 10 basis
points above the ceiling rate for AAA-rated entities and
for AA or AA- issues, the ceiling rate shall be 20 bps
above the ceiling rate for AAA-rated entities.
Page 1 oI 2 business.outlookindia.com , TaxIree Bonds to be Launched
31-08-13 http://outlookmoney.com/printarticle.aspx?287547
:KDWWRGR
Tax free bonds suit those in the highest income slab
and want to invest a lump sum amount. f you pay 30.9 per cent tax, a 10 per cent taxable
instrument, say, bank fixed deposit for senior citizens, yields 6.91 per cent after tax deduction. f tax-
free bonds give return of over 6.5 per cent, parking a lump sum in it is perfectly sensible. Wait for
entities to to declare the interest rates across various periods before investing. As these are
government-backed entities, issues with lower rating and thus a higher interest rate should not deter
investors. Watch this space. We would follow each bond issue closely.
sunildhawan@outlookindia.com
Click here to see the article in its standard web format
Page 2 oI 2 business.outlookindia.com , TaxIree Bonds to be Launched
31-08-13 http://outlookmoney.com/printarticle.aspx?287547