Public Issue of Indian Railway Finance Corporation Limited (IRFC) tax free bonds is open for subscription. Issue Period is from January 21st, 2013 to January 29th, 2013. The issue will close on the same day on which the RBI is scheduled to announce its monetary policy.

The issue has 2 investment options for retial investors –

1. 7.68% p.a. (10 Yrs) & 7.84 p.a. (15 Yrs) for investments up to and including 10 Lakhs and
2. 7.18% p.a. (10 Yrs), & 7.34% p.a. (15 Yrs) for investments above 10 Lakhs.

The issue has been rated ‘CRISIL AAA /Stable’ by CRISIL, ‘ AAA’ by ICRA and ‘CARE AAA’ by CARE.

Interest from these Bonds do not form part of total income as per provisions of Section 10 (15) (iv) (h) of Income Tax Act, 1961. And there shall be no deduction of tax at source from the interest payable on the Bonds.

However, the sum invested in these bonds is not eligible for any deduction under section 80C, 80CCF or 54EC.

Hence, no deduction benefit is avail while one invests money into these bonds. However, as mentioned earlier the interest which you enjoy will be fully exempt from tax, and therefore no TDS will apply as well. However, capital gains on these bonds are taxable like normal corporate bonds. 

Thus, if the bonds are sold within one year of the date of purchase, the short-term capital gains arising would be subject to tax at slab rates. Similarly, if the capital gains are made after a holding period of one year, long term capital gains will be applicable at 20% with indexation benefit or 10% without any indexation benefit.

Read more about tax free bonds available.

The brief details of the issue is as followed

Option/Series of Bonds	Tranche 1 Series 1	Tranche 1Series 2
Issue Price (Rs/Bond)	Rs.1000/-	Rs.1000/-
Coupon Rate (%) p.a.* for Category I, II, III (QIB, Corporate, HNI’s)	7.18%	7.34%
Coupon Rate (%) p.a.* for Category IV (Retail Investors)	7.68%	7.84%
Pre Tax Yield (%) p.a.** for Category I, II, III (QIB, Corporate, HNI’s)	10.39%	10.62%
Pre Tax Yield (%) p.a.** for Category IV (Retail Investors under 30.90% tax bracket)	11.11%	11.35%
Tenor/Maturity	10 Years	15 Years
Min Application	5 Bonds (Rs.5,000) across both the Series of Bonds

*Please note that the additional interest of 0.50% p.a. shall only be available to the original Allotees under Category IV for the Tranche – 1 Series I Bonds and the Tranche – I Series II Bonds. In the event the Bonds held by the original Allotees under Category IV are sold / transferred (except in case of transfer of Bonds to legal their in the event of death of the original Allottee), the coupon rate shall stand revised to the coupon rate applicable for Allotees falling under Category I, Category II and Category III.
**Pre Tax Yield has been calculated after assuming tax free rate of 30%.

How to apply for the issue:

You can apply for the issue online by visiting the IPO section of your trading account or through your broker. Read about tax free bonds

 

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