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Section 80CCF

Deductions under Income Tax Act help to lessen the income tax liability by reducing the gross total income. There are many such deductions provided by the Government for the advantage of various types of persons falling in different income groups. One of such benefit provided is deduction under Section 80CCF. It is a special provision for the benefit of investors through government approved infrastructure bonds. This provision is inserted to encourage people to invest in infrastructure projects of the country which thereby, shall result in decreased tax liabilities, as a deduction of such amount invested can be claimed.

What is Section 80CCF?

Chapter VI A of the Income Tax Act provides for deductions to be made from gross total income. Section 80C has a broad list of deductions. Section 80CCF is a subsection under Section 80C. Section 80CCF provides a deduction to the taxpayer with respect to the amount invested by him in specific infrastructure bonds, as approved by Government.

Deductions under Section 80CCF

The maximum amount of deduction that can be availed by an individual under this section is INR 20,000 per annum. A deduction shall be for specified infrastructure bonds and other tax saving bonds. This benefit is over and above the deduction claimed under Section 80C. It helps the taxpayer to reduce his statutory tax liabilities.

What are Infrastructure Bonds?

Bonds are good instruments to borrow capital and deposits from the public. The government of the country requires a huge sums to be invested in infrastructure activities for expansion and growth. When bonds are issued for investments in such infrastructure projects in a country, they are termed as Infrastructure bonds. Such bonds are either issued by

  • Government
  • Infrastructure companies as authorized by Government
  • Non-Banking Financial Companies (NBFC)

In other words, bonds issued by the above to finance infrastructure projects are infrastructure bonds.

Eligibility for Tax Deduction

Certain basic criteria should be met in order for an investor to truly benefit from the provisions of Section 80CCF. The following are some of the basic eligibility criteria for taxpayers:

  • Resident of India: Only those persons who are residents of the country are eligible to claim tax benefits under Section 80CCF. NRIs and foreigners are not eligible to claim deductions under this section.
  • Tax payer should be an Individual: This section is open only to individuals and is not available for companies, firms, organizations, associations, etc.
  • Hindu Undivided Family: Apart from individual taxpayers, Hindu Undivided Families are also eligible for deductions under Section 80CCF.
  • Joint Investment: Investments held in the name of two or more people are allowed. However, one person, the primary stakeholder, only can avail the tax benefits.
  • Type of bond: Tax saving bonds issued by banks or corporations are eligible to be invested in. Banks and other eligible corporations issuing such bonds should obtain prior approval from Central Govt.
  • Amount to be invested: There is no cap on the amount to be invested in such bonds
  • Amount available for deduction: Even though there is no cap for investing in such bonds, the maximum deduction that can be claimed is INR 20,000/-. This is a flat deduction provided by the Government.
  • Eligibility to invest: Unlike other investments, any investment made in this bond shall be in the name of the major person. In other words, investment cannot be made in the name of a minor.

Documentation required

Any individual or HUF who wants to invest under section as mentioned shall require the following documents:

  1. Valid ID proof – Government approved
  2. PAN card copy
  3. Bank account details, if required.

Applicability of Section 80CCF

Under this section, the benefit can be claimed by investors only through certain investments that are eligible for tax deductions. Not all bonds qualify for deduction under Section 80CCF. The following example provides a framework of how Section 80CCF works. Example:

Mr. A, aged 30 is a resident employee in a MNC.

He is earning a salary of INR 4.9 lakhs per year.

As per the current income tax slabs, he shall be taxable at an amount exceeding INR 2.5 lakh, i.e., his taxable income is INR 2.4 lakhs. In order to reduce his tax burden, he shall invest in a number of schemes which provide deductions under Section 80C. He will make an investment amounting of INR 1.5 lakh which is deducted under Section 80C, making his taxable income INR 90,000 now (INR 2.4 lakh – INR 1.5 lakh). In order to save more tax, he invests in an infrastructure bond offered by a top bank, investing INR 40,000 in the same.

In the current scenario, INR 20,000 out of the INR 40,000 invested can be deducted under Section 80CCF, thereby reducing his total taxable income to INR 70,000 (INR 90,000 – INR 20,000), helping him save a substantial amount of tax.

Lock-in Period, Interest and Taxation

Section 80CCF also states the interest earned on such invested amount, taxability of such interest and the term for which such amount has to be kept invested.

  • Interest: The interest earned on these bonds is not exempt. It is taxable. The tax will need to be paid by the investor.
  • Term: The term of these Tax Saving Bonds is usually 5 years or more. It is typically a long term bond.
  • Lock–in period: These bonds carry with themselves a lock in period of 5 years in most cases. Post this period, it is possible to sell them.

Frequently Asked Questions

What action shall be taken if an investor applies an amount of more than INR 20,000/-?

In such a case, the investor shall be allotted bonds for the sum applied. However, the benefit under section 80CCF will be restricted to INR 20,000/- only.

How will interest earned on these bonds be taxed?

The interest received on such bonds shall be taxable under the head income from other sources. It shall form part of total income of the assessee in the year in which it is received. It means it is taxable on receipt basis.

What is the eligibility to invest in infrastructure bonds?

The following persons are eligible to invest in the above mentioned bonds:

  • Individual who is a major
  • HUF
  • Both the persons as stated above should be Indian resident.

Are infrastructure bonds Tax Free?

No, income earned on these bonds in the form of interest is not tax free. It is liable to tax.

Is DEMAT Account necessary for the application of such bonds?

Yes, Demat Account is necessary to make an application for such bonds. However, it is dependent on the issuer whether or not to allot bonds without a demat account. Generally, all issues have both options.

What is the maximum amount for which benefit can be availed by an assessee under section 80CCF?

The maximum benefit available under Section 80CCF shall be INR 20,000/-

What is the tenure of the infrastructure bonds?

The tenure of the infrastructure bonds is 10 years.

The lock-in period of infrastructure bonds is 5 years.

The amount of penalty chargeable shall be Rs. 1,000 per day * 20 days of default. Penalty amount shall not exceed tax payable. Therefore, penalty charged will be 20,000/-

Can one avail the loan facility on these bonds? In other words, can these bonds be kept as a security and loan can be claimed?

These loans cannot be kept as security and one cannot take a loan against them in the period of first five years. These shall be kept as security only after expiry of first five years.

Can a minor apply for such bonds?

A minor cannot apply for such bonds. A guardian in the name of minor too cannot make applications in these bonds.

Can online application be filed?

Yes, if the eligible person has a demat account, he shall apply for such bonds online and will not be required to submit any documents.

How to check whether an assessee has been allotted the bonds or not?

  • Keep the allotment date with you
  • Login to your DP account after 2-3 days of such allotment.
  • If allotment has been done, then it will be shown in DP account
  • If allotment has not been done, then money shall be refunded.

What is the minimum amount of investment?

These bonds are available in multiples of INR 5000. Hence, minimum investment shall be of INR 5,000.

How does one apply for infrastructure bonds?

In order to apply for such bonds, one needs to follow the following steps:

  • Assessee can apply online to invest in an infrastructure bond, if he has a demat account. He will have to fill up the online application form.
  • A demat account and a PAN to trade in infrastructure bonds shall be required.
  • Assessee can also apply for these bonds in the physical form. A self attested PAN card shall be required. Assesee, along with self attested pan card, shall also require identity and address proof as part of the KYC (Know Your Customer), procedure.
  • These bonds have a maturity term of 10 years
  • There is a lock in period of 5 years on these bonds.
  • After the expiry of the lock in period, these bonds can be traded on stock exchanges just like stocks.

What are the benefits of the Infrastructure bonds?

The benefits of infrastructure bonds are:

  • Investments are easy to handle
  • Increased liquidity due to listing on stock exchanges
  • Low risks
  • Ratings are available and one can easily assess the quality of such bonds.

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