NTPC, one of the Maharatna companies of Government of India is issuing its Tax Free Bonds. It would offer coupon rate up to 7.62% for retail investors depending on tenure. You can choose between tenure of 10, 15 and 20 Years. The bond issue would be open for subscription for September 23 to 30, 2015. The post gives the details of the same.
NTPC (National Thermal Power Corporation Limited) is Government of India PSU and is engaged in the business of generation of electricity and allied activities. It is the largest Power generation company in India.
Also Read: PPF – A Must Have Investment
The NTPC Tax Free Bond offers the following interest rates. The interest would be paid every year.
The table also shows the effective interest rate for different tax slabs. For e.g. To earn post tax 7.36% interest on deposit a person in 30% tax bracket should actually get pre tax return of 10.65%.
As per rules, the interest rate offered on Tax-free bonds are linked to yield on Government Bonds. Companies with AAA rated tax free bonds can offer up to 55 basis points lower to the G-Sec yield to retail investors and 80 basis points lower for other investors.
Tax Free Bonds are suited for people in the tax bracket of 20% or higher who are looking for regular and safe income. In case you do not want regular income you should first exhaust your Rs 1.5 lakhs PPF limit where the returns are 8.7% and tax free. Salaried employees should opt for VPF before looking at tax free bonds. Both the above options have higher returns, tax free and partial exit options after 5/6 years.
Also Read: What is the Maximum Income Tax You can Save for FY 2015-16?
You can also buy Tax free bonds from the secondary market that are listed on stock exchanges. The table below gives the snapshot of the best tax free bonds available in secondary market. You can compare the YTM (last column) to the interest offered on NTPC.
The problem is liquidity of bonds. There are very few transactions in a day and you might not be able to buy at fair price. Also you incur brokerage in tune of 0.5% to 1% on these purchases.
The bonds can be only be issue in demat form. So you can apply through your demat account. Go to the IPO/NCD/Bonds offer tab of your Demat account and fill out relevant details.
You can also apply through internet banking through ASBA (Applications Supported by Blocked Amount). In this case the money is blocked in your savings bank account and is deducted only when the bonds are allotted in your name.
NTPC Tax Free Bonds 2015 suits investors who are looking for safe, regular income and are in the higher tax bracket. A few more PSUs are going to issue tax free bonds in coming days. The interest rate is expected to be similar. So in case you want to go for these bonds, invest early as these would be grabbed very soon and may close for subscription if it gets fully subscribed before closure date.
NTPC Tax Free Bonds have received very good response and was oversubscribed by 11.04 on the opening day itself. The retail portion was oversubscribed by 6.60 times.
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