TAXATION 7$;)5((%21'672%(/$81&+(' Government aIIows 13 firms to Iaunch tax-free bonds to raise Rs 48,000 crore in FY14 SUNL DHAWAN Tax-free bonds are back. With just about seven months for this financial year to come to a close, 13 government institutions have been given the nod to launch tax-free bonds and raise an aggregate of Rs 48,000 crore in 2013-14. These bonds will be tax-free, secured, redeemable and non-convertible. Though the interest from these bonds will not be taxed, the principal invested does not qualify for any tax deduction. Features The investment can be made under four different categories: Retail ndividual nvestors (Rs), Qualified nstitutional Buyers (QBs), Corporates, High net-worth ndividuals (HNs). The tenure of the bonds will be 10, 15 or 20 years. Under retail individuals, all individual investors, Hindu Undivided Families (HUFs) and non-resident ndians (NRs) on repatriation as well as non-repatriation basis can buy up to Rs 10 lakh in each issue, while individual investors investing more than Rs 10 lakh would have to invest under HN category. Sovereign wealth funds, gratuity and pension funds can also invest within the private placement mandate. Rate of interest There will be a ceiling on the coupon rates based on the reference government security (G-sec) rates. These bonds would be rated by one or more rating agencies. For AAA-rated issuers, the ceiling coupon rate will be the reference G-sec rate minus 55 basis points in case of Rs. However, in case the rating of the issuer is AA, the ceiling rate will be 10 basis points above the ceiling rate for AAA-rated entities and for AA or AA- issues, the ceiling rate shall be 20 bps above the ceiling rate for AAA-rated entities. Page 1 oI 2 business.outlookindia.com , TaxIree Bonds to be Launched 31-08-13 http://outlookmoney.com/printarticle.aspx?287547 :KDWWRGR Tax free bonds suit those in the highest income slab and want to invest a lump sum amount. f you pay 30.9 per cent tax, a 10 per cent taxable instrument, say, bank fixed deposit for senior citizens, yields 6.91 per cent after tax deduction. f tax- free bonds give return of over 6.5 per cent, parking a lump sum in it is perfectly sensible. Wait for entities to to declare the interest rates across various periods before investing. As these are government-backed entities, issues with lower rating and thus a higher interest rate should not deter investors. Watch this space. We would follow each bond issue closely. sunildhawan@outlookindia.com Click here to see the article in its standard web format Page 2 oI 2 business.outlookindia.com , TaxIree Bonds to be Launched 31-08-13 http://outlookmoney.com/printarticle.aspx?287547