Rural Electrification Corporation (REC) Tax Free Bonds – Should you invest?

Rural Electrification Corporation (REC), Govt of India undertaking Navratna company has come up with a issue of secured, tax free bonds of size 1500 crore with option to retain over subscription of up to Rs. 3000 crore.

Highlights of Rural Electrification Corporation Tax Free Bonds:

• The income by way of interest on these Bonds is exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of IT Act.
• There will be no deduction of tax at source from the interest, which accrues to the bondholders on these bonds irrespective of the amount of the interest or the status of the investors.
• Wealth Tax is not levied on investment in Bonds under section 2(ea) of the Wealth-tax Act, 1957.
• Allotment Only in Dematerialised Form
• Would be listed on BSE (Bombay Stock Exchange) Only
• Interest would be payable annually
• Minimum Application Amount: 5 Bonds or Rs. 5,000
• Tenor/Redemption Date: 10 Years and 15 Years from the deemed date of allotment
• Issue Opening Date: March 6, 2012
• Issue Closing Date: March 12, 2012
• Credit Rating: “CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE, “[ICRA] AAA” by ICRA & “Fitch AAA (Ind)by FITCH – the best rating. Also, REC Consistently rated “Excellent” in terms of performance by GOI since Fiscal 1994

Who can Apply?

• Individual and HUF applicants applying for any amount up to Rs. 1 Lac will be classified under Retail Category
• Individual and HUF Applicants applying above 1 Lac will be classified under HNI Category.
• NRI applicants are not allowed

Allotment Basis: on first come first serve basis to be determined on the basis of date of receipt of application duly acknowledged by Banker to the Issue.

Interest Rates:

Should you invest in REC Tax Free Bonds?

These bonds are best suited for people who fall in the highest tax bracket and requires regular income as the interest is payable annually. If you are not in the above category you can do equally good by investing in Bank Fixed Deposits.