Income Tax saving – Infrastructure Bonds

July 12, 2010

Income Tax
CBDT has notified New infrastructure Bonds u/s 80CCF.An Individual or HUF can invest in these newinfrastructureBonds upto Rs 20000/- in a Financial years.Main features of this new section and new notification is given below
  1. New section can be availed by individual or HUF only.
  2. 20000/- rs can be invested in aFinancial yearto avail deduction under section 80CCF
  3. 20000/- Limit is in addition to 100000/- Limit of setion 80C,80CCC,80CCD
  4. Tenure of the Bonds will be 10 Years.
  5. However Lock in period is 5 years ,after 5 years investor can withdraw money from the bonds
  6. After lock in period ,Investor can take loan against these Bonds
  7. Issuer of the Bonds is LIC,IFCI,IDFC and other NBFCclassifiedas infrastructure company.
  8. Permanent account Number is must to apply these bonds.
  9. Yield of the bond – The yield of the bond shall not exceed the yield ongovernment securitiesof corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond.
Section 80CCF of the Income-tax Act, 1961 – Deduction – In respect of subscription to long-terminfrastructurebonds – Notified long-terminfrastructurebond

Notification No. 48/2010[F.No.149/84/2010-SO(TPL)], dated 9-7-2010

In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds, subject to the following conditions, as long-terminfrastructurebonds for the purposes of the said section namely :-

(a) Name of the bond – The name of the bond shall be “Long-termInfrastructureBond”.
(b) Issuer of the bond – The bond shall be issued by :-
(i) Industrial Finance Corporation of India;
(ii)Life Insurance Corporation of India;
(iii)InfrastructureDevelopment Finance Company Limited;
(iv) a Non-Banking Finance Companyclassifiedas anInfrastructureFinance Company by theReserve Bank of India;

(c) Limit on issuance – (i) The bond will be issued duringfinancial year2010-11;

(ii) the volume of issuance during thefinancial yearshall be restricted to twenty-five per cent of the incrementalinfrastructureinvestments made by the issuer during thefinancial year2009-10;

(iii) ‘Investment’ for the purposes of this limit include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.

(d) Tenure of the bond. – (i) A minimum period of ten years:

(ii) the minimum lock-in period for an investor shall be five years:

(iii) after the lock in, the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue document at the time of issue;

(iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in period;

(e) Permanent Account Number (PAN) to be furnished – It shall be mandatory for the subscribers to furnish there PAN to the issuer;

(f) Yield of the bond – The yield of the bond shall not exceed the yield ongovernment securitiesof corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;

(g) End-use of proceeds and reporting or monitoring mechanism – (i) The proceeds shall be utilizes towards ‘infrastructurelending’ as defined by theReserve Bank of Indiain the Guidelines : issued by it ;

(ii) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;

(iii) the issuer shall also file these along with term sheets to theInfrastructureDivision, Department of Economic Affairs, Ministry of Finance within three months from the end offinancial year.

Annuity Payment options against Pension Policy

July 7, 2010

Please guide me as to how to decide about selection of proper option from the following options offered by Pension Plan :

1. annuity as long as one annuitant lives

2. annuity guaranteed for 5, 10, 15 or 20 years and life thereafter

3. annuity with return of purchase price to nominee

4. annuity payable for life increasing at a simple rate of x%

-Vinayak Bapat

Dear Vinayak, each of the option listed by you has it’s own pros & cons.

1. Annuity for life – In this case the annuity amount is highest but the annuity stops the moment, annuitant dies. In this option, If there is a surviving spouse, S/he ‘ll not get any more annuity from the annuity provider. This Option is beneficial to the persons, where no spouse is there to survive or extra provisions are already there for spouse.

2. Annuity Gtd. for a certain period – In this option, the Annuity is provided for a certain period no matter, annuitant is alive or not during the full period. In case of premature death of annuitant, this option ‘ll provide annuity till the gtd. period is over. If the annuitant survives the gtd. period, the annuity ‘ll continue till the death of annuitant & ‘ll stop after her/his demise. This option is beneficial again for persons, where there is a surviving spouse & there is a history of early death in the family.

3. Annuity increasing with a simple rate of 3% – This type of annuity ‘ll provide a small cushion towards inflation in the later part of life. The amount of annuity is lower here than the prev. 2 discussed. Here again the annuity stops after the death of primary annuitant.

4. Annuity with return of purchase price – Under this type, annuity is paid first to annuitant till life than to spouse till life & after that the purchase price is returned to the nominees of the annuitant. The payment in this type of annuity is lowest. This is suitable to the persons who wants to leave a fortune for their heirs after their demise.



Set off of LTCL from Shares against LTCG of Debt Funds

July 3, 2010

Six Tata Steel preference shares (FV Rs 100 each x 6 = Rs 600) were converted into one equity shares on 01 Sep 2009 by Tata Steel @ Rs. 417.10 (Equity Share closing price on 01 Sep 2009). Earlier the preference shares were alloted on 22 Jan 2008. Thus there is long term capital loss of Rs. Rs 600 – 417.10 = 182.90. Since this was done off market, no STT was paid.

Is it right to consider this loss for offsetting against LT gain from Debt Mutual Funds ( where no STT was paid)?

– Vinayak Bapat

Dear Vinayak, As per the given info, you can set off your LTCL from conversion of Pref. shares against LTCG from Debt fund.