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Infrastructure Bonds, A new tax saving scheme

The Government of India in its Budget Proposal of 2010 introduced a new income tax saving section by investing Infrastructure bonds. This falls under the 80CCF section, which is over and above the 1 lakh limit offered under the 80C section. This basically means that you can invest an additional INR 20000 after you have already invested the one lakh that falls under the section 80C of the income tax law. Some of the main features of the section are -
  • Limit of INR 20000 that can be invested into a infrastructure bond 
  • The benefit of tax saving is available for both individuals and HUF
  • The money will have a  lock-in period of 5 years
  •  PAN No. is a must to apply for these bonds
  •  If you fall in the 30% tax bracket, you can save about INR 6000.
  • After the Lock in period of 5 years, the investor can take a loan against the bond. 
  • Tenure of the bond will be 10 Years. 
  • The interest rate offered on the bonds could be 1 to 2 per cent lower than the prevailing market rate, since the section specifies that the yield on the bond cannot be more than the yield from government securities.

My prospective on this is that if i invest INR 20000 into the bond this year, i save a tax of about INR 6000, hence making my total investment worth INR 14000. and if after 5 years i get back approx INR 26000 after tax deduction. Its not a bad investment.