Tax Free Bonds in India - How to Invest & Its Benefits (2024)

FAQs

How to invest in tax-free bonds in India? ›

You can invest in a tax-free bond through a primary or secondary market. You can apply online or offline by following the steps given below: Step 1: Choose a financial organisation with a solid market reputation. The choices include banks, stockbrokers, and mutual funds, among others.

Investors favor municipal bonds, or "munis," for two main reasons. They are exempt from federal taxes, and they are relatively low-risk investments. While stable, income-producing bonds warrant a position in any well-diversified portfolio, there are inherent drawbacks to owning munis.

Often purchased by high-income investors, municipal bonds can mean tax-free investment income. The interest from these bonds is tax free at the federal, state, and local levels, as long as investors reside in the same state or municipality as the issuers.

You can invest the gain in certain specified bonds to claim tax exemption within 6 months of the date of sale of the asset. 54EC bonds, or capital gains bonds, are one of the best way to save long-term capital gain tax arising out of sale a capital asset. The maximum limit for investing in 54EC bonds is Rs. 50,00,000.

The short-term capital gain happens when equity shares and equity-oriented mutual funds are sold before 12 months. The short-term capital gain is taxable at 15% if STT is paid. NRIs can also invest in various tax-free bonds in India for NRI to avoid taxes.

Tax-free bonds come with a lock in-period of 10 to 20 years. The amount invested in a tax-free bond cannot be withdrawn before the expiry of applicable lock-in period. The interest income earned from these bonds are completely free from income tax. Tax-free bonds can be transacted in stock exchanges.

Call 855-850-6972 to speak with an investment professional. *Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares.

Longer-term bonds typically offer higher yields than short-term bonds. But high inflation and a slowing economy have turned the tables, and short-term cash equivalents currently yield more than 10-year Treasury bonds. The bad news is that if interest rates fall, those hefty cash yields could dissipate.

Is there a better investment than bonds? ›

Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns. By owning a mix of different investments, you're diversifying your portfolio.

High-yield bonds, or junk bonds, are corporate debt securities that pay higher interest rates than investment-grade bonds. High-yield bonds tend to have lower credit ratings of below BBB- from Standard & Poor's and Fitch, or below Baa3 from Moody's.

Bonds issued by the Central and State Governments are called Government security. Since these are issued by Governments they carry no credit risk. These are one of the safest types of Investment options in India to earn periodic interests and principal on maturity.

54EC bonds are ideal for investors with substantial long-term capital gains and seeking to save tax while looking for a safe investment option. They are particularly beneficial for: Retirees and Senior Citizens: Those seeking a safe investment avenue with tax benefits.

There are several tax-free investment options in India that can help you achieve your financial goals. This article introduces six popular choices: life insurance, Public Provident Fund (PPF), New Pension Scheme (NPS), pension plans, tax-saving deposits, and Senior Citizens Saving Scheme (SCSS).

In India, government bonds can be bought through banks, post offices, brokerage houses, gilt mutual funds, ETFs, RBI Retail Direct, and NSE goBID/BSE Direct.

4. What is the current interest rate of NHAI Bonds? As of February 2023, NHAI Bonds are offering attractive interest rates of up to 8.50% through the National Highways Infra Trust (NHAI InvIT) bonds. The interest rates may vary depending on the series and maturity of the bonds.