Rural Electrification Corporation Ltd (REC), a Navaratna enterprise, has come up with section 80CCF tax saving infrastructure bonds. The issue is open from 12th January to 28th March 2011.
REC, one of the infrastructure companies which is eligible to float section 80CCF tax saving long term infrastructure bonds, is planning to raise Rs 50 Crore by issuing 1 Lakh bonds, Rs 5000 face value each.
The company has a greens-shoe option to retain over-subscription for issuance of additional infrastructure bonds. The bonds carry a coupon rate of 8.0% per annum where bonds have a buyback option after five years, and 8.1% a year without the buyback option that will be redeemed after 10 years.
Credit Rating
The issue is unsecured, meaning, no assets of REC will back the debt created by the issue of bonds. But it has very good credit rating from all major credit rating agencies available in India. Considering this is govt backed enterprise, we can consider that money is safe in this issue.
Here are the details of credit rating of the issue.
AAA /Stable’ by CRISIL
‘CARE AAA’ by CARE
’LAAA’ by ICRA
And ‘AAA(IND) by Fitch
Interest Payment
Minimum Subscription is 2 bonds i.e. Rs 10,000. As opposed to all other infrastructure bond issues, the issue has only annual interest distribution option (doesn’t have compund interest option). Since the investor gets interest every year, he can invest the interst money in other investment avenues and earn money.
The tenure of the bond is 10 years. The issue has 2 options;
Option 1
Under this, buy back is proposed after 5 years i.e. the investor can sell the bonds back to the company and get back your money after 5 years. Interest rate for option1 is 8% per annum
Option 2
No buy back is offered under this option. The investor who choose this option will get their money only after 10 years. But they will continue to receive interest every year for full 10 years. Interest rate for option2 it is 8.1% per annum
Note: The minimum lock in period required to avail tax benefit under section 80CCF is 5 years.
Interest is paid annaully through NECS/At par Cheques/ Demand Drafts as per your choice. You can choose NECS option for hassle free interest payment receipt. You can change your bank account by filling up a form later, if required.
The first interest will be paid on 31st March 2012 and on 31st March of every subsequent year. The bonds are expected to get allotted by 31st March 2011. Even during this period i.e. from the date of application to March 31st 2011 you will get interest on the application money. This interest will be combined with the first annual interest payment.
Issue Details in Brief
Issue Period : 12th January 2011 to 28th March 2011
Rating : “AAA” by ICRA
Issue Size : Rs 50 crore
Face Value : Rs 5000 per Bond
Subscription Amount : Minimum 2 bonds
Lock-in Period : 5 years
Buy Back Option: Available
Listing : NSE/BSE
Tax Benefits
Under section 80CCF of the Income Tax Act, Rs 20,000 per annum paid or deposited as subscription to long term infrastructure bonds shall be deducted in computing the taxable income. This is over and above Rs 1,00,000 tax benefit available under section 80C, 80CCC and 80CCD.
Benefits as per Tax slabs :-
1. Slab 10.3% : Rs 2,060
2. Slab 20.6% : Rs 4,180
3. Slab 30.9% : Rs 6,180
