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Section 80CCF – Deductions on Infrastructure Bonds

Last Update Date : April 04, 2019
Estimated Read Time: 4 min

Section 80CCF is a deduction available for resident Indians and Hindu Undivided Family member who prefers to invest in the government approved bonds. The deduction limit is up to Rs 20,000 per year and applicable on long-term bonds having a minimum tenure of 10 years with a lock-in period of 5 years.

What is Section 80CCF?

Section 80CCF of the Income Tax Act is a special provision introduced for benefiting the investors of certain government-approved bonds schemes. The section was discontinued w.e.f AY 2013-2014. Section 80CCF was formulated in the year 2010 and came in force in 2011 under the income tax act. The government had re-introduced this section to encourage investments in the infrastructure projects of the country at the same time helping taxpayers reduce their liabilities.

What is Deduction under Section 80CCF?

Chapter VIA of the Income Tax Act deals with provisions related to deductions that are available while computing the total taxable income. Section 80C has a comprehensive list of deductions.

  • Section 80CCF which is a subsection of Section 80C gives the tax payer a deduction on the amounts invested by him / her in specific government approved infrastructure bonds.
  • The maximum deduction available under this section is Rs 20,000 per year which will be deducted from total taxable income.
  • The benefits of Section 80CCF are over and above that of Section 80C. This means that a tax payer can use the provision even after exhausting the limit of Rs 1,50,000 of Section 80CCF.

What are Government Approved Infrastructure Bonds?

  • These bonds are issued by infrastructure companies seeking approval of the government, and they offer a decent rate of interest plus additional tax benefits
    Corporations like the Life Insurance Corporation, Integrated Infrastructure Finance Company, Industrial Financial Corporation of India, and non-banking financial institutions which are approved by the government as infrastructure companies.
  • The tenure of the bonds must be a minimum of 10 years with a lock-in period of 5 years.
  • It is to be noted that the interest income earned on these bonds are taxable and will be added to income from other sources.
  • Such bonds may be held both in DEMAT or physical form
  • The amount paid or deposited during the previous year as a subscription to Long Term Infrastructure Bonds subject to a maximum limit of Rs 20,000.

Applicability of section 80CCF

Investors should remember that Section 80CCF applies only to certain investments.

Let us consider an example for better understanding

Mr Vilas, aged 35, works in an Information Technology Company, has earned a salary of Rs 6 lakhs this year. As per the income tax slabs, he is liable to pay tax on the amount exceeding Rs 2.5 lakhs, i.e. on Rs 3.5 lakhs. In order to reduce his tax liability, he invests Rs 100000 in schemes eligible for the deduction of section 80C. The limit of section 80C is Rs 1.5 lakh

Thus, now his taxable income at Rs 3.5 lakhs minus Rs 1 lakh = Rs 2.5 lakhs

Further, he also invests in government approved infrastructure bonds worth Rs 30,000.

Such bonds being eligible for deduction u/s 80CCF reduces his taxable income to Rs 2.5 lakhs minus Rs 20,000 = Rs 2.3 lakhs as the deduction u/s 80CCF is up to Rs 20,000.

Thus, we can see that Mr Vilas has reduced his tax liability considerably.

Who can Apply?

  • Indian resident – only residents of the country can claim tax benefits under sec 80CCF. NRIs and Foreigners are not eligible.
  • Individuals – the deduction is available only for individuals, and no companies, firms, organisations are eligible for this.
  • HUFs – only one member of the Hindu Undivided Family is eligible for the deduction.
  • Joint investment – a joint investment may be made in the name of two or more people however only the primary stakeholder will get the benefit.
  • Minors – minors cannot make investments in their names. Only adults are eligible for this deduction.

Individuals who wish to claim this benefit must furnish the following documents

  1. Valid government approved ID proof
  2. PAN details
  3. Bank Details

Cap (Lock-In), Interest and Taxation

  • The minimum investment must be Rs 5,000. The is no higher cap limit, however the deduction limits to Rs 20000. The bonds must have a 5 year lock-in period. Sometimes companies offer buyback options wherein the investor can surrender the bonds after 5 years without up giving up his interest income. These bonds are listed on the stock exchange
  • The interest is either paid annually or cumulatively. Interest income from these bonds are completely taxable and are added to income from other sources.
  • The amount of investment over and above the Rs 20,000 limit is taxable according to the tax brackets, and the interest income is added to income from other sources.

Bonds Eligible for Deduction u/s 80CCF

The government hasn’t specified the list of bonds eligible u/s 80CCF for AY 22018-2019. But corporation like LIC, IFCCI, Government approved NBFCs are eligible.

The IFCCI asked for the re-introduction of this section in the union budget 2018. The government wants to encourage investment in infrastructure bonds with a view of developing the overall infrastructure of the country. Section 80CCF is an attractive provision for investors seeking to invest in government bonds plus saving tax liabilities.

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Chetan Chandak (B.Com, LLB)
Chetan is the Head of Tax Research at H&R Block (India) with an experience of more than a decade in tax advising. He is also a regular contributor for some of the leading news publications in India such as Economic Times, Financial Express and Money Control. Professionally, Chetan is fascinated by international taxation and expat-related tax research.

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