Even although these are perfect tax-saving monetary instruments, most persons get confused in between these two selections.
To claim tax advantages, most persons are now busy seeking for investment selections this tax season. Starting from insurance coverage to repayment of education loans, a lot of such investments are exempted from tax.
Having mentioned so, investors who are seeking for additional tax-saving selections can look at Tax-Saving and Tax-Free Bonds. Experts say even although these are perfect tax-saving monetary instruments, but most persons get confused in between these two selections.
Firstly, tax-saving bonds and tax-totally free bonds are aimed at two diverse segments of persons and are two diverse forms of investment selections. While one lets investor love tax advantages on the principal quantity, the interest accrued on the other solution is totally tax-totally free. Similarly, although one comes with a lock-in period of 5 years, the other has no lock-in period.
Here is how Tax-saving bonds and Tax-totally free bonds differ
Tax-Saving Bonds
These bonds supply tax advantages to owners, as a result assisting them save a specific portion of their all round tax.
Investors can earn a specific interest on these bonds if opted for, along with the particular provision in the Income Tax Act providing tax advantages on investments.
A particular provision for tax saving bonds is presented beneath Section 80CCF of the Income Tax Act. Under this investors get the advantage of tax deductions up to Rs 20,000. Hence, one can lessen his/her taxable earnings by Rs 20,000 in a year.
Note that the interest earned by way of the bond is taxable. Deduction presented beneath section 80CCF is more than and above tax deduction u/s 80C that presents tax advantage up to Rs 1.5 lakh.
Tax-saving bonds come with a minimum lock-in period of 5 years and are perfect for mid-extended term investments.
Returns from these tax-saving bonds are low when compared to other investment as these are low-threat selections. Hence, professionals say, conservative investors who want to invest with out higher threat, could think about this investment solution.
Additionally, investors seeking for extended-term returns could also opt for these tax-saving bonds, as they are not appropriate for people seeking for brief-term returns.
Tax-Free Bonds
As per Section 10 of the Income Tax Act, 1961, these tax-totally free bonds do not attract tax on the interest earned from these bonds. Hence, the interest earned from these bonds is tax-totally free, as opposed to tax-saving bonds.
Investors, even so, do not get any tax advantages on the quantity invested in the tax-totally free bonds. These bonds are not eligible for deductions beneath section 80C of the Income Tax Act. Also, tax-totally free bonds do not yield tax advantages on the principal quantity of the bond, as opposed to tax-saving bonds.
These tax-totally free bonds supply a slightly larger interest price as compared to tax-saving bonds.
Tax-totally free bonds are usually for extended-term investment, with a tenure of up to 20 years, and investors can invest up to Rs 5 lakh in tax-totally free bonds.
These bonds can also be listed on the stock market place. Even although the interest earned from these tax-totally free bonds is totally free from tax, note that capital gains from promoting these tax-totally free bonds in the secondary market place are taxable.
Also, retain in thoughts the advantages gained from these bonds rely on the earnings tax slabs that an investor falls beneath.