IDFC Infrastructure Bonds for Tax Saving: Review, Analysis & Calculation for Effective Returns: Finance Trading Times

IDFC Infrastructure Bonds for Tax Saving: Review, Analysis & Calculation for Effective Returns

This article covers the details about IDFC Infrastructure Bonds for Tax Saving (Long Term Infrastructure Bonds from Infrastructure Development Finance Company Limited (IDFC Ltd). Calculations for Tax saving in IDFC Infrastructure Bonds as per the different income tax brackets is also covered..
Last year, around this time, there was a wave of lot of infrastructure bonds coming to the market for tax saving purpose. We'd covered them extensively in deep details. Now that the financial year is coming to a close in India in next few months, the same companies are again lining up with a new fresh issue of similar long term infrastructure bonds.
The market should expect to see a buzz for Long Term Infrastructure Bonds from various companies in coming few months. There were Infrastructure Bonds from IDFC, IIFCL and L&T already available in the market during this time last year. Today, IDFC has come out with a new fresh issue of similar bonds and it is currently open for subscription, under the name IDFC Long Term Infrastructure Bonds for Tax Saving. So what's the difference between the bonds already available from other organizations and the one now offered by IDFC? 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 IDFC Infrastructure Bonds for Tax Savings 2011-2012 (To check what offering IDFC had last year, one can read more about the details IDFC infrastructure Bonds that was available in last financial year)

Review of IDFC Long term Infrastructure Bonds for Tax Saving

IDFC Infrastructure Bonds
The basic working of these bonds from any issuer, whether it is IDFC or L&T or IDFC or IFCI, remains the same. Here are the examples of the calculations including tax benefits for investments in Infrastructure bonds :Calculations and Returns in Infrastructe Bonds Investments.
Now, once you are clear about the fundamental details, let's see the IDFC Infra Bonds for Tax savings in more detail:

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)

Series 2 - Is for 10 year long bonds paying an interest rate of 9% per annum (cumulative interest payment)

The bonds will be listed on NSE and BSE 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. 5000 - i.e. you need to invest minimum 5000 Rs. to buy a bond - cost of 1 bond. Upper limit is not there i.e. one can apply for and buy any no. of bonds from IDFC.
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 IDFC Infrastructure Bonds.

Depending upon your income tax slab, following tab benefits are available, in case of Maturity and in case of Buyback:

Tax Benefit adjusted rate of returns (pre-tax) to Investors on Maturity
Tax Slab – 30.90% 15.2% 13.1%
Tax Slab – 20.60% 12.8% 11.5%
Tax Slab – 10.30% 10.7% 10.2%

Tax Benefit adjusted rate of returns (pre-tax) to Investors on Buyback
Tax Slab – 30.90% 19.1% 17.4%
Tax Slab – 20.60% 15.2% 14.2%
Tax Slab – 10.30% 11.8% 11.4%

What differentiates IDFC Infrastructure Bonds from the other issues like IDFC Infrastructure Bonds which are currently open?
The difference is in the interest rate or coupon rate offered on IDFC bonds.

What is the security rating for the IDFC Infrastructure Bonds ?
Fitch has given a AAA Stable rating, ICRA has given AAA (Stable Outlook) rating to the IDFC Infrastructure Bonds.
These are the highest credit ratings awarded by these rating agencies

How much will I effectively save by investing in IDFC Infrastructure Bonds ?
The calculations will be similar to what we covered for IDFC Infrastructure Bonds. Please see IDFC Infrastructure Bonds for Tax Saving: Calculations, Review and Details

What are the investment dates and period for IDFC Infrastructure Bonds ?
The IDFC Infrastructure Bonds subscription date was opened on 21 November 2011 and will close on 16 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
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