What is a Tax-Free Bond?
🔹 A security issued by a company, financial institution, or the government.
🔹 Offers regular or fixed payment of interest in return for borrowed money for a
specified period.
Why are these bonds called "tax-free"?
✅ No tax on the interest earned from these bonds under the Income Tax Act, 1961.
Who provides tax-free bonds?
- 🏛️ Government-backed entities
- 🏗️ Public undertakings like IRFC, PFC, NHAI, HUDCO, REC,
NTPC, NHPC, IREDA.
How do tax-free bonds work?
- 📆 Tenure: Invest for 10, 15, or 20 years.
- 💰 Liquidity: Easily sell bonds before maturity.
- ✅ Safe investment: Assured regular interest payments.
- ❌ Tax-exempted: No taxes on interest earned.
- 📜 Demat optional: Can be held in physical form.
Let’s look at an example to understand this better
Who is eligible to invest in tax-free bonds?
- 👨👩👧👦 Retail Individual Investors (RIIs) - Includes
Hindu Undivided Families (HUF) and Non-Resident Indians (NRIs).
- 💼 High Net-worth Individuals (HNIs) - With a low-risk
appetite, investing up to Rs. 10 lakhs.
- 🏢 Qualified Institutional Buyers (QIBs) - As per SEBI
regulations.
- 🏦 Corporates, trusts, co-operative banks, and regional rural
banks.
How does one invest in tax-free bonds?
- 📝 Available in physical & Demat mode.
- 💻 During the public issue, investors can apply online &
offline.
- 📈 After the public issue, bonds can be purchased via a
trading account in the secondary market.
Note: Currently, there is no tax-free bond issue in the primary market. Investors can
buy through the secondary market.
Why invest in tax-free bonds?
- 💰 Tax-free income
- ✅ Low risk
- 🔄 Easy liquidity
- 📜 Demat optional
- 🌟 Ratings available from various agencies
