Tax-Free Bonds

Tax-free bonds are issued by public sector companies such as NHAI (National Highways Authority of India), PFC (Power Finance Corporation), IRFC (Indian Railways Finance Corporation), and HUDCO (Housing and Urban Development Corporation) among others, that offer tax benefits to investors. These bonds are issued with the objective of raising funds for infrastructure development projects in the country.

The interest income earned from these bonds is exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act, 1961. This makes them an attractive investment option for investors who are looking for a tax-free source of income.

Tax-free bonds are usually issued in tranches and are listed on the stock exchanges such as BSE and NSE for trading. The interest rates on these bonds are typically lower than the prevailing market interest rates, as they offer tax benefits to investors. The bonds can be bought during the issue period through the public issue or the secondary market. The secondary market for tax-free bonds is typically less liquid than other fixed income securities. Investors can purchase tax-free bonds in India through demat accounts or physical certificates. The bonds can be held till maturity or sold in the secondary market before maturity. In case of premature sale, the investor may incur a capital loss or gain depending on the prevailing market price of the bond.