31stJanuary 2012, Mumbai: Mr. Suneet Maheshwari, CEO of L&T Infrastructure Finance Company Limited which opened Tranche 2 of its tax saving infra bonds, expects huge infrastructure investments in India over the next 5 years . While highlighting the strong future prospects of infrastructure sector in India, he said that Infrastructure bonds are a boon to the economy and the tax payers.
Infrastructure bonds are gaining popularity as a tax saving instrument amongst the various debt options. With yields on government securities beginning to moderate, interest rates(which are linked to gilt yields) on future bond issues may not be as high as compared to the current issues. Already, rates on the current tranche of issues are lower than what was offered a month or two ago.
“L&T Infra opened Tranche 2 infra bonds on January 10, 2012 and would remain open for subscription till February 11, 2012. This issue is worth Rs. 300 crore and the allotment is on first-come-first-serve basis, so investors should not miss out as the yields are still high which may not be the case going forward as the interest rates are expected to soften further,” said Mr. Maheshwari. Infrastructure Bonds provides tax benefit by reduction in taxable income and is specifically targeted to the retail/ salaried income investors who are looking for more options to reduce tax. They are different from tax free bonds (e.g. bonds issued by NHAI) which are even targeted to High net worth / Institutional investors.
Currently the maximum investment limit for tax saving u/s 80CCF is Rs. 20,000 annually. In the coming budget the Finance Ministry is considering a proposal to double the investment limit in infrastructure bonds to Rs. 50,000 as part of a strategy to provide funding boost to this vital sector. “Many of us had recommended that the government increase the limit to Rs. 50,000. And, we believe if it does become Rs 50,000, the response might actually be more. A tax break like this will help channelise larger savings into infrastructure.” said Mr. Maheshwari. The tax saving bonds are a good option not just for the investors but also for the issuers to raise funds as it provides them access to LT funds having a tenor of 5 years and above.
This is a boon for tax payers as it is above the existing Section 80C tax exemption available to taxpayers which have a limit of Rs 100,000. Tax payers can now invest in Infra Bonds during Jan-March quarter and reap twin benefits of higher returns and getting a deduction of Rs. 20,000 from, In this regard, their taxable income. Infra Bonds compares well to other tax savings schemes available under the Section 80C of The Income Tax Act. The investor has two options available – annual interest payment or a cumulative interest payment. The current interest rate offered is 8.7% p.a.
The Tranche 2 Bonds have been rated ‘CARE AA+’ by CARE and ‘[ICRA] AA+’ by ICRA.
Yield table
| Series | 1 – Annual interest payment | 2 – Cumulative interest payment at the end of maturity | ||
| Face Value per Tranche 1 Bond (`) |
` 1,000 | ` 1,000 | ||
| Interest Rate | 8.70 % p.a. | 8.70 % p.a. compounded annually | ||
| Frequency of InterestPayment | Annual, i.e. yearly payment of interest | Cumulative interest payment at the end of maturity or buyback, as applicable | ||
| Time to Maturity | 10 years from the Deemed Date of Allotment. | 10 years from the Deemed Date of Allotment. | ||
| Time to Buyback | N.A. | N.A. | ||
| Tax Rate (%) | Tax Benefit adjusted rate of return on Maturity (with TaxBenefits up to ` 20,000 per annum) u/s 80CCF of theIncome Tax Act, 1961 | |||
| 10.30 | 10.41% | 9.89% | ||
| 20.60 | 12.41% | 11.24% | ||
| 30.90 | 14.81% | 12.79% | ||
| Tax Rate (%) | Tax Benefit adjusted rate of return on Buyback (with TaxBenefits up to 20,000 per annum) u/s 80CCF of theIncome Tax Act, 1961 | |||
| Buyback on the first Working Day after the expiry of 5 years from the Deemed Date of Allotment | Buyback on the first Working Day after the expiry of 7 years from the Deemed Date of Allotment | Buyback on the first Working Day after the expiry of 5 years from the Deemed Date of Allotment | Buyback on the first Working Day after the expiry of 7 years from the Deemed Date of Allotment | |
| 10.30 | 11.52% | 10.88% | 11.09% | 10.40% |
| 20.60 | 14.82% | 13.42% | 13.83% | 12.34% |
| 30.90 | 18.75% | 16.45% | 17.04% | 14.59% |
The TARR is calculated assuming a gross investment of ` 20,000 less the relevant tax benefit under Section 80CCF of the Income Tax Act, 1961 available to the investor (varying according to the tax rate applicable to the relevant investor) resulting in a net invested amount. The aggregate of annual or cumulative interest coupon and the redemption amount receivable by the investor, as applicable, discounted over time divided by such net investedamount leads to the TARR. All interest received as the TARR will be subject to income taxas further set out in the section titled “Statement of Tax Benefits” at page 38 of Prospectus – Tranche 2.
About L&T Infrastructure Finance Company Limited
L&T Infrastructure Finance Company Limited incorporated in 2006, is registered with the Reserve Bank of India (“RBI”) as a systemically important non deposit taking NBFC and an Infrastructure Finance Company (IFC). The Company has also been granted the status of Public Financial Institution (PFI) in the current fiscal by the Ministry of Corporate Affairs. The business comprises the provision of financial products and services for its customers engaged in infrastructure development and construction, with a focus on the power, roads, telecommunications, oil and gas and ports sectors in India. The Company is also registered with the RBI as an IFC and an NBFC-ND-SI, which allows it to optimize its capital structure by diversifying its borrowings and accessing long-term funding resources, thereby expanding its financing operations while maintaining its competitive cost of funds. L&T Infrastructure is a 100% subsidiary of L&T Finance Holdings which has been recently listed in the stock market.
