High on the heels of IDFC who recently opened the subscription for their IDFC Infrastructure Bonds for Tax Saving, L&T has come out with their issue of Infrastructure Bonds for tax savings as the financial year is going to come to a close in India in March 2012. Same L&T had issued similar infrastructure bonds for tax savings in last financial year and here are the details of the same: L&T Infrastructure Bonds for Tax Saving - Feb 2011
The market should expect to see more buzz for Long Term Infrastructure Bonds from various companies in coming few months as tax savings will be on the minds of investors. So what's the difference between the bonds already available from other organizations and the one now offered by L&T? Bascially nothing except the interest rates offered and the organization which is offering them.
Let's start with some basics first:
If you are completely new to Tax Free Infrastructure Bonds, we strongly advise you to get the basic details about working of the infra bonds and the tax saving eligibility and calculations as mentioned in the article Tax Free Infrastructure Bonds Details: Save Tax On Investments in Infra Bonds. Once you are familiar with the basic calculations and tax saving details as per your individual tax slab, you can proceed with the details of this open issue of L&T Infra Bonds for Tax Savings 2011-2012 (Similar offering L&T had last year and the details of that can be seen on L&T Infrastructure Bonds for Tax Saving - Feb 2011. Last year L&T Infra bonds managed to raise around 450 Crore Rs. through the infra bond issue.
Review of IDFC Long term Infrastructure Bonds for Tax Saving
The basic working of these bonds from any issuing company or organization remains the same, whether it is IDFC or L&T or IDFC or IFCI. Here are the examples of the calculations including tax benefits for investments in Infrastructure bonds :Calculations and Returns in Infrastructure Bonds Investments.
Now, once you are clear about the fundamental details, let's see the L&T Infra Bonds for Tax savings in more detail:
The aim is to collect around 1100 Crore Rs. from the market through the same of these infra bonds.
The bonds are being offered in 2 different series - basically meaning that investors have 2 choices/options for investments:
Series 1 - is for 10 year long bonds paying an interest rate of 9% per annum (annual interest payment) - Maturity Amount is 1000 Rs. as interest is payable annually.
Series 2 - Is for 10 year long bonds paying an interest rate of 9% per annum (cumulative interest payment) - Maturity Amount is 2367.36 Rs.
The bonds will be listed on BSE only (Not NSE) and can be traded after the minimum lock in period of 5 years - the lock in period if for gaining the tax benefit. These bonds will come with a buyback option after 5 years i.e. IDFC holds the right to buy back the bonds after 5 year period.
The face value of each bond is set to Rs. 1000 but a minimum of 5 bonds need to be bought - i.e. you need to invest minimum 5000 Rs. to buy a L&T infra bond. Upper limit is not there i.e. one can apply for and buy any no. of bonds from L&T.
Annual interest payment bonds will be bought back at the rate of Rs. 5000 while cumulative interest payment bonds will be bought back at the rate of Rs. 7695 per bond.
However, as per the rule of tax-saving investments under section 80CCF of the IT Act, tax savings will be allowed only on a maximum of 20,000 Rs. irrespective of the amount of investments made in the L&T Infra Bonds.
What differentiates L&T Infra Bonds from the other issues like L&T Infra Bonds which are currently open?
As of now only IDFC Infra bonds issue is open (See details: IDFC Infrastructure Bonds for Tax Saving), but very soon we expect more infrastructure companies to line up with their issues as there are still 4 months to end of financial year.
The main difference between L&T infra bonds and IDFC infra bonds is the credit rating assigned and the price per bond.
What is the security rating for the L&T Infra Bonds ?
Fitch has given a AA+ rating, ICRA has given AA+ rating to the L&T Infra Bonds.
These are the highest credit ratings awarded by these rating agencies
How much will I effectively save by investing in L&T Infra Bonds ?
The calculations will be similar to what we covered for L&T Infra Bonds. Please see L&T Infra Bonds for Tax Saving: Calculations, Review and Details
What are the investment dates and period for L&T Infra Bonds ?
The L&T Infra Bonds subscription date was opened on 25 November 2011 and will close on 24 December 2011. This will give you enough time to plan your investments rather than waiting for last minute tax savings. Also, 9% interest offering looks good.
It is not mandatory to have a PAN no. for buying these bonds. Also, one can buy these bonds in both demat as well as physical format