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Time is running out for Relief Bonds
Jyotika Thukral |
January 02, 2003 15:58 IST
If you are in the highest tax slab, have lots of spare cash that you won't be requiring anytime soon, or if you would like to gift cash to your kids without fear of the taxman jumping on you, the Reserve Bank of India's 8 per cent five-year Relief Bonds offer the perfect investment avenue.
But don't take your time deciding on it. With Comrades Vijay Kelkar and the finance ministry dreaming up ways to chop tax reliefs wherever they spot them, there is a good chance that these bonds will provide less relief from tax after the next budget, if not earlier.
The biggest catch, of course, is the ceiling: one can invest only Rs 200,000 in the 12 months from March 1, 2002, to February 28, 2003. There is no way one can circumvent this rule since the limit applies even to investments made in the names of minor children.
Investments above this limit, even if made by mistake, will not receive interest. Of course, if your spouse has a separate source of income, she can invest another Rs 200,000 from her income.
But is it worth locking up Rs 200,000 for five years? Prima facie, no. But as Ajay Gupta, a Delhi-based chartered account points out, it is possible to sell these bonds in the secondary market.
However, with the imposition of the Rs 200,000 ceiling, buyers are fewer since they too cannot exceed the limit. The limit applies to purchases of already issued bonds too. So discounts may have to be offered to encourage buyers to buy from you instead of directly from the RBI.
However, if liquidity is not an issue, these bonds offer the highest rate of return for an instrument that is also tradable. For those with more money than Rs 200,000 per annum, the RBI has a second window selling six-year Relief Bonds.
The catch here is that these cannot ever be transferred, says Gupta. “These bonds can be recommended if an investor would like to invest huge amounts. They give 7 per cent, tax-free returns - much more than investments in bank fixed deposits or national savings certificates (the only instruments where there are no limits to investment).
Taxing questionSo what's the big deal about Relief Bonds? Answer: apart from the public provident fund, these bonds offer the highest yields on investment today, and they are tax-free to boot. While some longer-term fixed deposits with some banks offer comparable interest rates, post-tax the yields are much lower for people in the highest brackets.