Infrastructure Bonds


While presenting the Union Budget 2010 in the parliament on February 26, 2010, Finance Minister Pranab Mukherjee proposed the deduction in infusions in long-term infrastructure bonds in India of upto Rs 20,000.This came as the relief to the individual taxpayers in context of expenditure as well as saving. Prior to the Union Budget 2010 announcement, the inclusion of tax-free bonds was doubted by the industry analysts keeping in consideration the dipping finances of the state and dearth of foreign investment. The announcement not only surprised the common man but also the industry observers.

By investing in infrastructure bonds in India, an investor can save on taxes as provided under Section 88 of the Income Tax Act, 1961. The two significant economic factors playing vital role in the investment decisions in the infrastructure bonds are Inflation and interest rate movements. For instance, price of a bond will fall if interest rates rise and vice-versa.

Tax Rate
Investments in Infrastructure
Slab Tax Savings
After 3 years After 5 years
30% 6,000 20,000 32,139
20% 4,000 27,485 30,139
10% 2,000 25,485 28,139
Obligatory Returns to defy Inflation Effect 25,194 29,387