FAQ on Section 80CCF (Tax Saving Infrastructure Bonds)

25 Nov    Tax Issue


Issue of Financial Year 2011-12: IFCI, IDFC, L&T 2011, SREI, L&T 2012, IDFC 2012 – Tranche 2, IFCI 2012,

IDFC 2012 – Tranche 3

What is the additional tax benefit under Section 80CCF?

All of you know that you can reduce your taxable income by investing in certain instruments like tax saving fixed deposits, or tax saving mutual funds, but the limit on the deduction from your taxable income is Rs. 100,000. So, if you invest Rs. 150,000 in tax saving mutual funds – the tax benefit will be capped at Rs. 100,000. Section 80CCF allows you to invest an additional Rs. 20,000 in infrastructure bonds, and have that reduced from your taxable income in addition to the Rs. 100,000 deduction you get from the other instruments.

What is the benefit of investing in Tax Saving Infrastructure Bonds if they offer the same tax benefit?

The Tax exemption benefit under Sec 80CCF on a sum of Rs. 20,000/- is over and above Rs.1,00,000/- benefit under section 80C, 80CCC and 80CCD.

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 assesses in that financial year in which they are received.

Can a Minor apply for subscription to these bonds?

A minor is not eligible to apply for subscription to these bonds.

Are these infrastructure bonds Tax Free?

No, the interest received in these bonds is not tax free. The investor is liable to pay tax on the interest received. The investment up to Rs. 20,000 made will be eligible for tax benefits in the year of investment under Section 80 CCF of the Income Tax Act, 1961.

Will TDS be deducted on these bonds?

No TDS shall be deducted on interest with respect to bonds issued in Demat mode. TDS will apply with respect to bonds issued to investors in physical form.

I don’t have Demat Account. Can I apply?

Though it depends on Issue to issue but generally, Yes, Investors who do not have any Demat Account can apply for the bonds in physical form. Additional requirements for applying in physical form are given in the Annexure.

Pls note In terms of Regulation 4(2)(d) of the SEBI Debt Regulations, the Company will make public issue of the Tranche 1 Bonds in the dematerialised form. However, in terms of Section 8 (1) of the Depositories Act, the Company, at the request of the Applicants who wish to hold the Tranche 1 Bonds in physical form, will fulfill such request

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.

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. In case of application made in joint names, the tax benefit shall only be availed by the first applicant.

What is the maximum amount for which the benefit u/s 80CCF be availed?

Maximum benefit to investor shall be Rs. 20,000/– under section 80CCF of the Income Tax Act, 1961

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

Who can offer these Long Term Infrastructure Bonds?

The entities like LlC, IDFC, IFCI and other NBFCs which are classified as Infrastructure Finance Companies by RBI shall be allowed to issue these long term infrastructure bonds.

I Don’t have a PAN card. Can I still apply for subscription?

PAN card is mandatory for subscribing to these bonds.

How will I get my interest on the due date?

The interest shall be credited to the respective Bank account registered with the Demat account (and for the bond held in physical form in the bank account indicated in cancelled cheque attached with the form as mentioned in Annexure I through ECS on the due date for interest payment, and if the due date is a public holiday then the next working date.

What is the interest on Application Money & Interest on refund ?

The Company shall not pay any interest on application money and interest on refund of Application Amount, in whole or part.

Can I get loan on these bonds?

You cannot avail of any loan by pledging these bonds in the first 5 years. Thereafter, these bonds may be pledged to avail loan

Where shall I submit the application forms?

All Application Forms duly completed together with cheque/demand draft for the amount payable on application must be delivered before the closing of the subscription list to any of the Bankers to the Issue or collection centre(s)/ agent(s) as may be specified before the closure of the Issue.

Who shall pay the interest and repay the Principal amount?

The respective company 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.

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.

Is it ok to submit photocopy of all the 3 documents mentioned in the Annexure?

As long as the documents are self attested, the photocopy all these documents can be submitted with the application form.

Mode of Holding can be Either or Survivor?

When the bonds are held in joint names and one of the joint holders dies, the survivor(s) will be recognized as the Bondholder(s)

Will there be TDS in Physical Form? (As per the General Instruction 12, to Avail TDS investor can submit 15G/15H)?

In case the bonds are held in physical form, no TDS is applicable as long as the interest received does not exceed Rs. 2500 per year. However such interest is taxable income in the hands of resident bondholder. If the interest exceeds Rs. 2500, to ensure non deduction of tax as source the bondholder are required to furnish either (a) declaration [induplicate] in the prescribed form i.e. Form 15G. In case of Senior citizens it should be 15H.

Nomination process in case opted for physical?

Bonds company would provide the investors holding the bonds in physical form, nomination facility at the time of sending the bond certificates

Is it necessary to provide the identity and address proof in case of second and third holders?

The address and identity proof must be provided for all the joint holders of the bonds. The cheque details would be required only for the account in which the payments need to be credited.

In whose favor the cheque is to be made?

As per the details on the particular issue form.

Can Intercity clearing cheques acceptable?

No, cheques has to be payable at par or local clearing cheques are only allowed.

Can NRI application are eligible?

Non-resident investors including NRIs, FIIs and OCBs are not eligible to participate in

the Issue.

Will the NCDs be traded on the exchange?

Some of the issue are listing on BSE and NSE, and some are not, please refer the form for details.

Under cumulative option, when will I get the interest amount?

Under cumulative option, Interest will be paid at the end of 5 years if buyback option is exercised or at the time of maturity

Documents required to invest in Tax Saving Infrastructure Bonds

Annexure I – Additional requirements in case an applicant is not having a Demat Account Applicant who wishes to subscribe to the Bonds in physical form shall undertake the following steps:

– Don’t fill up the demat details in the application form

– Compulsorily provide the following three documents with the application form

1. Self-attested copy of the PAN card;

2. Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:

3. Ration card issued by the Government of India; or

4. Valid driving license issued by any transport authority of the Republic of India; or

5. Electricity bill (not older than 3 months); or

6. Landline telephone bill (not older than 3 months); or

7. Valid passport issued by the Government of India; or

8. Voter’s Identity Card issued by the Government of India; or

9. Passbook or latest bank statement issued by a bank operating in India; or

10. Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or

11. Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.

12. Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.



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