Shedding light on Section 80CCF for infrastructure bonds
What's the story
Section 80CCF of the Income Tax Act of India allows deductions for investments made in long-term infrastructure bonds.
This initiative encourages public investment in critical infrastructure projects, fostering growth and development for the nation.
By investing, taxpayers contribute to progress while benefiting from lower taxable income - a win-win situation!
Eligibility
Eligibility criteria for claiming deduction
In order to qualify for the deduction under Section 80CCF, an individual needs to invest in long-term infrastructure bonds designated by the government for this specific purpose.
These bonds are issued by the Industrial Finance Corporation of India, Life Insurance Corporation, Infrastructure Development Finance Company, and other eligible issuers.
The investment needs to be made within the financial year for which you are claiming the deduction.
Limit
Maximum deduction limit
The maximum deduction that can be claimed under Section 80CCF is ₹20,000 per financial year. This deduction is over and above the ₹150,000 deduction available under Section 80C of the Income Tax Act.
However, it's important to note that this benefit is only available to individual taxpayers and Hindu Undivided Families. This presents a significant tax-saving opportunity for those who are eligible.
Lock-in
Lock-in period requirement
The investments made in infrastructure bonds under Section 80CCF have a lock-in period of five years. This means you can't sell or transfer your bonds before five years have passed since you acquired them.
This lock-in period is there to make sure the money stays available for what it's supposed to be used for — building infrastructure — for a decent amount of time.
Savings
Impact on tax savings
By investing ₹20,000 in eligible infrastructure bonds, an individual in the highest tax bracket (30%) can save up to ₹6,000 in taxes every year.
However, financial advisors caution that investors should evaluate their financial objectives and risk tolerance before choosing these bonds, as they offer a fixed interest rate and a lengthy lock-in period.
Selection
Choosing the right infrastructure bond
When selecting an infrastructure bond under Section 80CCF, investors should consider the credit rating of the issuer, the interest rate compared to market rates, and services offered by the issuer such as online access to investment details.
A higher credit rating indicates a lower likelihood of default by the issuer on repayment obligations.