Tax Saving Infrastructure Bonds: Know How Much Tax To Pay When Maturity And How To Avoid TDS

Although the bonds offered tax benefits of 80CCF at the time of investment, the interest on the bonds is nonetheless taxable in the hands of investors.

Long-term tax-saving infrastructure bonds issued in fiscal year 2011-12 to allow deductions of up to Rs 20,000 from taxable income under Section 80CCF of the Law of income tax come due in fiscal year 2021-2022.

Although the bonds offered tax benefits of 80CCF at the time of investment, the interest on the bonds is nonetheless taxable in the hands of investors.

Thus, long-term tax-saving infrastructure bonds were basically not tax-free bonds.

Two options were available to investors: the annual interest payment option and the cumulative interest option.

While investors who opted for the annual interest payment have already paid tax on the amount of interest received, investors who opted for the cumulative option would end up paying more tax than the tax saved l year of investment.

Infrastructure bond: confusion between tax saving obligations and non-taxable obligations causes taxpayers to pay more taxes than benefits

Taxation

As interest on long-term infrastructure bonds is taxable, the interest received – annually for investors who have opted for the annual option and accrued at maturity for investors who have opted for the cumulative option – by investors will be added to the taxable income of investors.

Thus, for investors in the lower tax brackets, the tax payable will be lower and it will be higher for those in the higher tax brackets.

TDS

For resident taxpayers who have opted for the cumulative option in physical form, the interest payment will be subject to withholding tax (TDS) at 10 percent for cases where the interest payments at the time of redemption exceed 5,000 Rs.

In the event that such a bondholder does not have a valid PAN or, in the event that the investor has not filed his income tax returns in the past two years and the TDS and TCS aggregate for each of those years is Rs 50,000 or more, the TDS rate will rise to 20 percent.

No TDS will be applicable for investors holding bonds in matured form.

For non-resident taxpayers, the 31.2 percent TDS would apply on interest payments.

How to register the TDS

To avoid TDS, resident bondholders must submit 15G / 15H, if applicable. Those who had not provided the PAN details at the time of the investment should update the PAN with the respective RTAs within the time frame provided by the respective bond issuers.

Non-resident bondholders must submit a tax order under section 197/195 specifying the NIL / TDS rate lower than the respective ATRs within the allotted time to ensure that the TDS in accordance with the rates specified in the ordinance are applied.

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