These bonds are rated AAA by reputed rating agencies and are rated on both the stock exchanges. Reader’s kindly note that the interest paid on these bonds is tax free, however capital gains from sale of these bonds in the secondary market are taxable both in the short term and long term.
Tax free bonds are ideal for HNI investors with a long term perspective and offers better returns when compared to basic fixed deposits in banks. This can be best explained using an example say an HNI investor invests a corpus of Rs 1 crore in a bank’s fixed deposit which would give a maximum return of approximately 10% ,thereby 10 lacs being the interest amount liable for taxation, the investor would get lower returns on the principal amount invested in the end.
So if you are an HNI falling into the highest income tax slab then for the corpus amount invested you would be entitled to pay 30% of the interest earned, so in the above example that means on the 10 lacs of interest earned you would have to pay tax of 30% if you fall into the highest income tax category.
Hence tax free bonds are surely useful as the interest earned while investing in them is not taxable; however capital gains by selling of these bonds would be taxable. In conclusion tax free bonds can surely be considered as a bankable option especially for HNI’s to invest their funds and earn tax incentives.
Disclaimer:
1. Views as are mentioned in the article are personal views of Author and nothing to link with Co., its Director and Employees.
2. All investments are subject to market risk and you need to consult your financial advisor/consultant before investment.
