Strengthen the bond between you and your wealth
What is a tax-free bond?
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Security issued by a company, financial institution or the government
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Offers regular or fixed payment of interest in return for borrowed money for a specified period
Why are these bonds called "tax-free"?
Who provides tax-free bonds?
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Government-backed entities
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Public undertakings, such as IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC, Indian Renewable Energy Development Agency (IREDA)
How do tax-free bonds work?
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Tenure: You can invest for up to 10, 15, or 20 years – it’s your choice.
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Liquidity: You can easily sell your bonds any time before maturity.
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Safe investment option:You can be sure of receiving the promised regular interest.
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Tax-exempted:You are not required to pay any taxes on the interest you earn.
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Demat account is optional:You can hold these bonds in physical form, too.
Let’s look at an example to understand this better.
Amount invested
(10 Years) | Rate of interest
per year | Total amount of interest per year | Interest received
annually |
|---|
| Rs.1,00,000 | 7.5% | Rs. 7,500 | Rs. 7,500 |
Though the interest received from these bonds is non-taxable, any profits derived by selling these bonds in the secondary market are liable to taxes.
Who is eligible to invest in tax-free bonds?
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Retail Individual Investors (RIIs) - Including members of Hindu undivided family (HUF) and Non-Resident Indians (NRIs).
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High Net-worth Individuals (HNIs) - who have a low-risk appetite and can invest up to Rs. 10 lakhs.
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Qualified Institutional Buyers (QIBs) - who have been defined under the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
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Corporate, trusts, co-operative banks, regional rural banks
How does one invest in tax-free bonds?
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You can avail these bonds in physical form as well as in Demat mode.
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If you are investing in tax-free bonds during the public issue, you have the option to apply online as well as offline for it.
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If you are investing in tax-free bonds after the public issue, you can invest via your trading account, just like you invest in shares.
Note: Currently, there is no tax-free bond issue in the primary market. If anyone interested can invest through the secondary market.
Why invest in tax-free bonds?