Section 80CCF

This deduction can be added to the other deductions available, thereby lowering the overall tax liability of an investor. The deduction under Section 80CCF is over and above the deduction available under Section 80C, thereby helping a taxpayer save more by smartly using this component of the Income Tax Act.

Eligibility for Deductions under Section 80CCF

An investor should remember that there are certain basic criteria which should be met in order for him/her to truly benefit from the provisions of Section 80CCF. Listed below are some of the basic eligibility criteria for taxpayers.

1. Indian Resident – Only residents of the country can claim tax benefits under Section 80CCF. NRIs and foreigners are not eligible for deductions.
2. Individuals - This provision is open to individuals only and not for companies, firms, organisations, associations, etc.
3. Hindu Undivided Family – Apart from individual taxpayers, only Hindu Undivided Families are eligible for deductions under Section 80CCF.
4. Joint Investment – A joint investment can be made in the name of two or more people, but tax benefits can be availed by only one person, the primary stakeholder.
5. Bond type – Tax benefits under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government.
6. Maximum Amount – The maximum deduction permitted under Section 80CCF is Rs 20,000 and investments over this amount are taxable.
7. Minors – An investment cannot be made in the name of a minor, only adult taxpayers can claim deduction through investments.

Documents Required

Individuals who wish to claim the benefits under Section 80CCF need to furnish the following documents.

1. Valid government approved ID proof
2. PAN details
3. Bank details (If required)

Details about Section 80CCF

1. Under Section 80CCF of the Income Tax Act, tax-saving bonds and investments in infrastructure bonds qualify for tax benefits, thereby benefiting both the investors and government.

1. Better infrastruture leads to faster economic growth, thereby impacting the growth of a country’s infrastructure.

1. Nation’s infrastructure is funded by the taxpayer that requires billions of dollars to meet the global standards.

1. To meet this financial need, contribution from Indian citizens helps significantly.

1. Section 80CCF has been introduced in the Income Tax Act by the government to attract more investors by offering incentives for specific investment schemes.

1. Section 80CCF was proposed in the 2010 budget and implemented in 2011 through the Income Tax Act.

1. This section provides tax deductions for investments in infrastructure and other bonds and offers unique incentives for investors.

1. This section promotes investment in the nation’s infrastructure by offering incentives, thereby allowing investors to save substantial amounts that would otherwise be subject to tax.

Applicability of Section 80CCF of the Income Tax Act

Investors can utilise Section 80CCF for their benefit by remembering that only certain investments are eligible for tax deductions. The example below highlights how Section 80CCF works.

Example:

Mr. Dinesh, aged 28 is a journalist, earning a salary of Rs 4.9 lakhs per year. As per the income tax slabs, he needs to pay tax on the amount exceeding Rs 2.5 lakh, i.e., his taxable income is Rs 2.4 lakhs.

In order to reduce his tax burden, he invests in a number of schemes which provide deductions under Section 80C. He invests a total of Rs 1.5 lakh which is deducted under Section 80C, making his taxable income Rs 90,000 now (Rs 2.4 lakh – Rs 1.5 lakh). In order to save more tax, he invests in an infrastructure bond offered by a top bank, investing Rs 30,000 in the same.

Now, Rs 20,000 out of the Rs 30,000 invested can be deducted under Section 80CCF, thereby reducing his total taxable income to Rs 70,000 (Rs 90,000 – Rs 20,000), helping him save a considerable amount on overall tax.

How Does Section 80CCF Work?

Below given are the details about how Section 80CCF work:

1. Mr. A is required to pay taxes on income exceeding Rs.2.50 lakh if an annual income is Rs.5 lakh.

1. He can claim deductions up to Rs.1.50 lakh if he invests in this scheme under Section 80CCF.

1. The remaining taxable income would be Rs.1 lakh, after these deductions.

1. Mr. A then invests Rs.40,000 in approved infrastructure bonds, further reducing his taxable income.

1. His taxable income is reduced to Rs.80,000, by claiming deductions up to Rs. 20,000 under Section 80CCF.

Lock-in Period, Interest and Taxation

The following are the details regarding lock-in period, interest, and taxation on the interest earned on invested amount under Section 80CCF:

1. Interest earned from the bonds are taxable and must be paid by the investor.

1. The term of Tax Saving Bonds are five years or more and are known as long-term bonds.

1. The lock-in period for these bonds is five years and investors can sell these bonds after the lock-in period.

What are Infrastructure Bonds?

Here are the details about infrastructure bonds that you must before investing in it:

1. Bonds are used for raising capital and deposits from the public

1. To promote expansion and growth, the government needs substantial funds for infrastructure development.

1. Infrastructure Bonds are the bonds that are specifically designed for investments in infrastructure projects.

1. Infrastructure bonds are issued can be issued by the following entities to finance the infrastructure projects:
   1. The Government
   2. Non-Banking Financial Companies (NBFCs)
   3. Infrastructure companies authorized by the Government

What are the Benefits of Infrastructure Bond?

Here is the list of advantages of infrastructure bonds:

1. Minimum risk factor

1. Simple and easy investment procedure

1. Evaluating bond’s quality has become easier as ratings are provided

1. Provides increased liquidity

Are Infrastructure Bonds Eligible for Deduction under Section 80CCF?

Yes, infrastructure bonds are eligible for deductions under section 80CCF if issued by the following financial institutions:

1. Life Insurance Corporation (LIC)

1. Industrial Financial Corporation of India

1. Integrated Infrastructure Finance Company

1. Other government-approved NBFCs (Non-Banking Financial Company)

Note: The Income Tax Department has not published any list of bonds that are eligible for deduction under section 80CCF. Here are other criteria to consider while choosing bonds to invest in:

1. The tenure of the bond must be ten years or more

1. The lock-in period should be of five years

1. The bond may be in physical or Demat form

1. The interest earned from these bonds is taxable and it must be added to your taxable income

Things to Remember

An investor should keep the following points in mind while investing in tax saving bonds.

1. Interest: The interest earned on these bonds is taxable and an investor will have to pay tax on it.
2. Term: Tax Saving Bonds are typically long term bonds, having tenures of more than 5 years, with a lock in period of 5 years in most cases. It is possible to sell them after the lock in period.
3. Investment type: Investment can be made in a number of bonds, but the maximum deduction in a year is limited to Rs 20,000 only.
4. Joint Investors:` In the case of joint investors only the first applicant can claim tax deductions. In the case of Hindu Undivided Families, only one member of the family can claim deductions.