If you are looking for a haven to park your funds in, here’s good news for you: Invest in tax free bonds and earn interest on your funds every year. There’s more good news; the interest earned on your bond is entirely tax-free.
The security of tax free bonds in India is issued by a company, financial institution or the government. These bonds are, therefore a safe investment option.
You can sell the bonds before maturity, too, on market price as they are listed on the Bombay and National Stock Exchanges.

Features of tax free bonds

These bonds have unique characteristics.

  1. Interest: The interest on these bonds is earned annually, and the Central government determines it. All interest earned is exempt from taxation.
  2. Tenure: Tax free government bonds usually come as long-term investment tools. You can invest in these bonds for up to 10, 15 or 20 years, depending on your needs.
  3. Liquidity: You can trade these bonds at any time as per the ongoing market rate. However, any profit from the sale of these bonds will be taxed under the IT Act.
  4. Form: You can hold these bonds in physical or dematerialised bonds. So you may choose to purchase using your demat account or purchase directly.

Benefits of tax free government bonds

The advantages of tax-free go beyond the fact that these bonds give you tax-exempt interest. Here’s why you should invest in tax free government bonds:

  1. Assured income: The interest you earn on these bonds is assured every year. You stand to earn tax-free income every year, apart from the principal that will be returned to you on maturity. Only Indian nationals and Hindu Unified Family are allowed to purchase these bonds.
  2. Safety: These bonds are backed by the government of India, which means the likelihood of default is low. Even if a company you bought bonds from goes bankrupt, its assets will be liquidated. As bondholders, you will get your investments back.
  3. Easy trade: The tax free bonds are listed on the stock market. So you can sell your bonds on the market price when the prices appreciate. You stand to benefit in any market appreciation.
  4. Higher profit for higher tax bracket: These bonds are an ideal investment option for high net worth individuals. So if you fall in the 30 percent or above tax bracket, you stand to gain more. Additionally there is no upper limit to investment in these bonds.

Conclusion (CTA):

Tax free bonds are a good option for anyone looking for a fixed tax free income from investments. If you are looking at fixed deposits and corporate bonds as an investment option, you should also consider tax free government bonds as an option. It is a safe option to fall back to without having to worry about liquidity.

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