Key Features :
New Section Introduced in Income Tax Act 2011: Section
80CCF was introduced in the Income Tax Act, 1961 in the budget
of February 2010. As per this section investments made in
notified infrastructure bonds are exempt from tax up to
maximum of Rs 20,000 per year. Section 80CCF allows
individuals to invest Rs. 20,000 in infrastructure bonds, and
reduce this amount from taxable income. This exemption is in
addition to the Rs. 100,000 deduction under section 80C
(Investment in instruments like ELSS Mutual Funds, Life
Insurance, Provident Fund etc).
Interest Income is Taxable: The interest income from
infrastructure bond is taxable. The interest will be added to
investors taxable income. This means even though the
investment in these bonds is exempt from tax (maximum Rs
20,000). interest income is not. This means investment under
section 80CCF is advisable only after the investor has
completely exhausted Rs One Lakh investment under section 80C.
The funds raised through these bonds will be utilized towards "infrastructure
lending" as defined by the RBI in the regulations
issued by it from time to time, after meeting the expenditures
of, and related to the issue. These infrastructure bond issues
are part of the government's effort to mobilize money to
part-fund the massive $1-trillion infrastructure spend it has
planned for the Twelfth Plan.
Tax Benefits: Under section 80CCF of the Income Tax
Act, Rs 20,000 per annum paid or deposited as subscription to
long term infrastructure bonds shall be deducted in computing
the taxable income. This is over and above Rs 1,00,000 tax
benefit available under section 80C, 80CCC and 80CCD.
Pros: The limit of Rs 20,000 per annum is in addition
to Sections 80C, 80CCC and 80CCD. Hence, it is advisable to
consider applying in this issue. Cons: The bonds are locked in
for five years, so there is no exit in case you need the money
midway which restricts liquidity.