Section 80CCF Infrastructure Bonds FAQ

I’ve fielded a lot of questions on the Section 80CCF Infrastructure bonds, and while I’ve written individual posts on the infrastructure bonds that have so far come out under this section, there is nothing on this section itself, so I’m going to address some common questions about  Section 80CCF with this post.

It goes without saying that all these questions have popped up in the comments section at one time or the other (well, not the first one).

Is 80CCF a new Space Shuttle?

I wish it were, but it’s not even remotely as cool as that. In fact, it’s just a new section that allows Non Banking Financial Companies (NBFCs) to issue infrastructure bonds, and investors who invest money in these bonds can get an additional tax benefit.

What is the additional tax benefit under 80CCF?

All of you know that you can reduce your taxable income by investing in certain instruments like tax saving fixed deposits, or tax saving mutual funds, but the limit on the deduction from your taxable income is Rs. 100,000.

So, if you invest Rs. 150,000 in tax saving mutual funds – the tax benefit will be capped at Rs. 100,000.

Section 80CCF allows you to invest an additional Rs. 20,000 in infrastructure bonds, and have that reduced from your taxable income in addition to the Rs. 100,000 deduction you get from the other instruments.

Will I get the tax benefit every year, or just one year?

You will get the tax benefit only in the first year, which means that if you buy bonds worth Rs. 20,000 in this year – Rs. 20,000 will be deducted from your taxable income while calculating tax this year

There is no tax benefit from next year onwards.

I have  a tax liability of Rs. 12,000 – will that become zero if I buy bonds worth Rs. 12,000?

No, that’s not how they work. Buying the bonds will not lead to a reduction in the tax paid by reducing that amount from your tax burden.

The benefit comes from reducing your taxable salary by the amount of your investment, so that the final tax burden is reduced.

Is there TDS on the interest?

For bonds that are issued only in electronic format there is no TDS, however that doesn’t mean that there is no tax on them.

Is the interest from these bonds tax free?

While there may be no TDS on the interest on these bonds, they are taxable, and the interest will be added to your income, and it will be taxable.

Do I need a Demat Account to invest in these infrastructure bonds?

Every bond issuer has different terms, and it depends on what their terms of issue are, but the IFCI issue is open only for Demat account holders, while the IDFC and L&T issues were available to people who wanted to subscribe via physical form as well.

Will these 80CCF bonds be listed on a stock exchange?

Yes, the bonds will be listed on a stock exchange, however they come with a lock in period, and you can’t sell them before the lock in period. For example, the IDFC bond had a lock in period of 5 years, so you can’t sell these bonds within 5 years, but once they list you will be able to sell them.

I missed the existing issues, will there be new infrastructure bond issues?

Yes, there are going to be more 80CCF infrastructure bond issues in the future, and if you missed the earlier ones, there is still a chance to get these bonds.

What tax proof will I get if I applied for the infrastructure bond in dematerialized form?

You will get allotment advice in the mail that you can use for tax proof, and if you haven’t received the proof then some people have been advised that they can use the copy of their Demat holdings to show that you own the bonds.

Can NRIs invest in Section 80CCF bonds?

The bonds that have been issued so far haven’t allowed investments from NRIs, and I think there might be some clause which limits NRIs from investing in these bonds.

Since I need a Demat account to buy these bonds, will I need a broker to exercise the buyback option?

You won’t need a stock broker to exercise the buyback option. In the case of IFCI you can write to them and ask them to exercise the buyback, and in the case of IDFC and L&T they can exercise it by buying it back from you and crediting your bank account, so you don’t need a broker.

You will need a broker if you decide to sell it on the exchange though.

When will I receive the physical allotment advice letter, and when will I start seeing them in my Demat account?

This is a question that has been tormenting a lot of people because the companies issuing these bonds don’t bother to communicate when the bonds will be allotted or when they will send the allotment advice letter.

No one can say for sure if the company doesn’t communicate this, but I’ve seen that the past couple of issues have taken about 3 – 4 weeks from closing of the issue to credit the bonds, and then an addition 2 or 3 weeks for the letter to arrive.

How are the yields for these bonds calculated?

This question is a bit more involved, and I have done full posts on how yields for tax saving bonds are calculated, as well as the limitations of the method used to calculate them and you can go through these posts to understand this better.

How can I keep track of these 80CCF infrastructure bond issues?

I have created this post with the calendar of 80CCF bond issues, and you can check that periodically to see if there are any new issues. This will also be widely reported in news articles, so it’s quite likely that you come across them in your daily reading.

Any other questions?

I’ve tried to cover all questions that I see pop up frequently, but if you have any other questions feel free to leave a comment, and I will try to answer them.