PFC Infra Bonds for Tax Saving: Review, Analysis & Calculation for Effective Returns: Finance Trading Times

PFC Infra Bonds for Tax Saving: Review, Analysis & Calculation for Effective Returns

This article covers the details about PFC Infra Bonds for Tax Saving (Long Term Infrastructure Bonds) from PFC. Calculations for Tax saving in PFC Infra Bonds as per the different income tax brackets is also covered..
It was in the last financial year in the month of around Februrary 2011 when we saw the Power Finance Corporation or PFC came out with its PFC Long Term Infrastructure Bonds issue. This year too, the company has decided to cash in on the tax saving buzzword just before the close of this financial year and has come out with a fresh issue of similar PFC Long Term Infrastructure Bonds for Tax Saving.
High on the heels of IDFC, L&T and IFCI who recently opened the subscription for their respective long term infrastructure bonds, PFC has now joined the bandwagon to cash in on the tax saving rush and has launched its own issue of Infrastructure Bonds for tax savings as the financial year is going to come to a close in India in March 2012. PFC Infra Bonds

Let's start with some basics first for the PFC Infrastructure bonds issue:
What is the business of PFC Power Finance Corporation which is offering these Tax Saving Infrastructure Bonds?
PFC is a leading financial institution in India focused on the power sector.
It works closely with the Government of India, State Government and Power sector utilities as well sa power sector provate companies for the development and implementation of policies and structural and procedural reforms for the power sector in India.

PFC Infra Bonds for Tax Saving

What are the products and services offered by PFC Power Finance Corporation ?
The company offers
- various financial products to pwer sector and projects
- advisory and other services to power sector
- project conceptualization for generation (conventional and renewable), transmission and distribution projects as well as for related renovation and modernization projects
- provides funding and financing, long and short term loans, rebt restructuring services
- Provides fee-based technical advisory and consultancy services for power sector projects

What are the details about the financial performance of PFC Power Finance Corporation ?
The company being a government run "Nav-Ratna" company is known for its solid and consistent financial performance. Both Total Income and Profit After Tax for the company has increased in the recent past.
Moreover, the credit rating agencies have provided a good stable rating to the issue of tax saving bonds. (see details below)

How do the PFC Power Finance Corporation Tax Saving Infrastructure Bonds work?
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 PFC Infra Bonds for Tax Savings 2011-2012
The basic working of these bonds from any issuing company or organization remains the same, whether it is IDFC or L&T or PFC. 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 PFC Infra Bonds for Tax savings in more detail:

The issue size for the PFC infra bonds is Rs. 4033.13 Crores.

The bonds are being offered in 2 different options with 2 different maturity periods - 10 year and 15 years:

Series 1 - is for 10 year long bonds paying an interest rate of 8.20% per annum - coupon rate is lower than that offered by earlier issues of IFCI, IDFC and L&T which are at 9% and more (see details below)

Series 2 - Is for 15 year long bonds paying an interest rate of 8.30% per annum - again, coupon rate is lower than IFCI, IDFC and L&T which are at 9% and above
Exit option available after 5 years and 10 years period.

Both these bonds come with the option of annual and cumulative dividend payment.
The bonds can be traded after the minimum lock in period of 5 years - the lock in period if for gaining the tax benefit.

Each PFC Infra Bond has a face value of 1000 Rs. Upper limit is not there i.e. one can apply for and buy any no. of bonds from PFC.
Allocation is on first come first serve basis.

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 PFC Infra Bonds.

What differentiates PFC Infra Bonds from the other issues like IFCI, L&T & IDFC Infra Bonds which are currently open?
The main difference between PFC infra bonds and IFCI, IDFC & L&T infra bonds is the credit rating assigned, coupon rate offered and the price per bond. See details below:
1) IDFC Infrastructure Bonds for Tax Saving
2) L&T Infra Bonds for Tax Saving
3) PFC Infra Bonds for Tax Saving

Other then the above, investors can also check the NHAI Bonds for Tax Savings

What is the security rating for the PFC Infra Bonds ?
The issue has been rated 'CRISIL AAA/Stable' by CRISIL and 'ICRA AAA' by ICRA.

How much will I effectively save by investing in PFC Infra Bonds ?
The calculations will be similar to what we covered for PFC Infra Bonds. Please see PFC Infra Bonds for Tax Saving: Calculations, Review and Details
Also note that Wealth Tax is not levied on investment in Bond under section 2(ea) of the Wealth-tax Act, 1957.
The income by way of interest on these Bonds is fully exempt from Income Tax under Section 10(15)(iv)(h) o! f the Income Tax Act, 1961 and shall not form a part of the total income

What are the investment dates and period for PFC Infra Bonds ?
The PFC Infra Bonds subscription date was opened on December 30, 2011 and will close on January 16, 2012. This will give you enough time to plan your investments rather than waiting for last minute tax savings
Have Comments or Questions? Please post them as comments using "Post our Comments" link below. Your queries will be responded for free in 24 hrs!

1 Comment: Post your Comments

Vishwanath Rao said...(on 2 January 2012 at 01:57 )  

IFCI Ltd, Series IV Offering is closing on 16th Jan 2012.

Wish you all happy and fruitful trading and investing activities with safety! = = = Post a Comment

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