Best Way To Earn Tax Free Income-Tax free Bonds

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Best Way To Earn Tax Free Income-Tax free Bonds

 

Now days every people invest in stock market. Stock market is main source of income for many people. But other peoples who wants to invest in stock market has two things in mind.

 

1) High return  2) Low risk

But we know the concept of finance Risk and Return go hand in hand. So higher the  risk  higher the return and vice versa. But question arises are there is any instruments in which risk is not so high and return is good.

Answer is YES, Tax Free Bonds issued by the PSU and Government agencies.

 

So let us discussed about Tax Free Bonds:

  1. Tax-free bonds 

Tax-free bonds are types of goods or financial products, which the government enterprises issue. One example for this is the bonds issued by NHAI. They offer you a fixed interest rate, and hence is a low-risk investment avenue. As the name suggests, it’s most attractive feature absolute tax exemption. This is as per Section 10 of the Income Tax Act of India, 1961. Tax-free bonds generally have a long-term maturity of typically ten years or more. Government invests the money collected from these bonds in infrastructure and housing projects.

  1. Who can invest in tax free bonds?

Anyone can invest in tax-free bond. It is the most hot favourite instruments for so many investors. Individuals, HUF members and NRI who have high net worth also invest in such types of bonds. Partnership companies & limited liability groups are also eligible for investing . Entities like trusts, co-operative & regional banks and corporate companies too are regular investors in tax-free bonds.

  1. Features & Advantages of Tax Free bonds
  • Interest: This bond offers interest rates of nearly 7 to 8.5% which fairly  attractive to claim income tax exemption . The bondholder                            receives the interest annually. Coupon rate is fixed and market rate is subject to change according to condition prevailing in the market

 

  • Risk factor : Risk in such kinds of bonds are significantly less. Chances of defaulting on interest payment is very low as these schemes are from the government itself.

 

  • Liquidity: These bonds are not highly liquidable in nature. There is lock in period of 10-20 years of such types of You cannot withdraw your money before the maturity date. Therefore, please make sure that you will not need this money in near future before investing.

 

  • Tax Exemption: Theses bonds are issued by the government and this are tax free. Interest income is entirely tax free and there is no tax deducted either. However, compared to the bank FDs, tax-free bonds offer great benefits to investors who are in the high tax bracket.

 

  • Returns: Returns are largely dependent on bonds buying price. This is because they are traded in low volumes with a limited number of interested buyers or sellers.

    

Example of  tax free bonds

National Highways Authority of  India The National Highways Authority of India (NHAI) bonds offer a coupon rate of 8.2 per cent and like all of the companies, they are government owned and hence very secure. The bonds are priced at Rs 1,080 on the NSE. The coupon rate on these bonds is 8.2 per cent. The next interest payment of these bonds would be Oct 1, 2019. The bonds are AAA rated though there are no worries on defaults, since it is a government owned institution. It is important to note that as the date of the interest payment date draws closer, these bonds tend to move higher in price. 


 

 

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