Tax savings Bond: Generally, an investor is always looking for such attractive investment options that can give good returns as well as tax benefits. Tax saving bond is one such investment option, which can help you save tax. The initial investment made to purchase tax savings bonds is exempt under the 80CCF provisions of the Inam Tax Act. The minimum lock-in period of a tax savings bond is 5 years. The main attraction of tax saving bonds is the least risk and average but better returns. It is better for such investors who do not want to take the risk of the market and want good returns from options like FD or RD. These are issued by the government from time to time, so returns are guaranteed on them.
Long Term Investment Promotion
Where you can take tax benefit on the money deposited in it, your money also increases in the long term. Most of the tax-saving bonds are in the infrastructure sector as the government wants to encourage more investors to support long-term investment plans in the infrastructure sector by providing tax breaks. Their lock-in period is usually at least 5 years old. At the same time, some have a longer lock-in period. It is clear that it encourages mid-term to long-term investment.
How will the tax be saved on tax saving bonds?
In the case of tax saving bonds, the tax benefit is received on the principal amount under Section 80CCF of the Income Tax Act, which is invested in these bonds. Under this, the investor gets the benefit of tax deduction on investments up to Rs 20,000. Therefore, in a financial year, taxpayers can reduce Rs 20,000 from their total taxable income.
Examples: Suppose the annual income of Ramesh Kumar (fictitious name) is 4.8 lakh rupees. In such a situation, he falls in the tax bracket of 10 percent. To save tax, he has bought a tax saving bond of Rs 40 thousand from the bank, whose lawn in period is 5 years. In such a situation, he is eligible for tax deduction of 20 thousand under section 80CCF of the Income Tax Act. His taxable income is 2.3 lakhs, which will reduce to 2.1 lakhs after this investment.
Separate from tax free bonds
There are tax-free bonds and tax-saving bonds in the 2 popular categories of bonds. Many people understand them as one, but they are both different. The interest income in tax-free bonds is completely tax-free. You do not have to pay any tax on the income received on investing in these bonds, while the interest of tax-saving bonds is taxed.
Features: Tax Saving Bond
- This is a low-risk investment option. Better for those who have started investing immediately.
- You get more liquidity in the case of tax saving bonds.
- You can sell them when the price increases because they trade on the exchange.
- The interest rate on tax-saving bonds is based on the current rates of government securities. Currently, this rate is attractive compared to bank FD.
- In this, investors can choose the cumulative and non-cumulative options.
- In this, the interest rates are attractive compared to the small savings scheme.
- There is no maximum limit for investment in it.
- The maturity period of the bond can be extended further.
- Liquidity is a better option than trading on the exchange.
- Returns from 5 years of lock-in period can be better.
- Through this, you can avail tax deduction up to 20 thousand rupees in a financial year.
- It is a good option for mid to long term investors.
(Source: BNP Fincap Director AK Nigam talks, www.bankbazaar.com)