Tax deduction

New Delhi: Investment in infrastructure bonds issued by Life Insurance Corporation of India (LIC), Industrial Finance Corporation of India (IFCI) and Infrastructure Development Finance Company Ltd (IDFC) would qualify for the additional Rs 20,000 deduction for individual taxpayers.

The additional tax deduction would be available for investments made in such bonds in 2010-11. Besides these three entities, bonds issued by a non-banking finance company classified as an infrastructure finance company by the RBI would also be counted for this purpose.

Simply put, an individual can invest up to Rs 20,000 in infrastructure bonds issued by these entities and claim a deduction of up to Rs 20,000 in addition to the existing aggregate limit of Rs 1 lakh allowed under Sections 80C, 80CCC and 80CCD of the Income Tax Act.

The tenure of the infrastructure bonds has to be a minimum of 10 years with a lock-in period of five years. It will be mandatory for the subscriber to furnish permanent account number to the issuer for investment in the bonds, an official release issued here on Friday said.

To promote savings and to ensure their utilisation for the thrust area of infrastructure, the Finance Minister, Mr Pranab Mukherjee, had in Budget 2010-11 announced that the Government would allow a deduction of an additional Rs 20,000 for investment in certain long-term infra bonds.

The names of the entities that can issue bonds entitled for this tax break were announced by the Finance Ministry on Friday.

Mr Vikram Limaye, Executive Director, IDFC, said the CBDT circular was yet another positive announcement for infrastructure financing.

It provided another avenue for raising resources, especially of longer duration funding. It would help better intermediation of domestic retail savings into infrastructure financing.

The tax break would not only benefit the investors in these bonds, but would help the issuers too because of the attractive cost, he added.