Friday, April 9, 2010

What are Bonds

Various types of Bonds are available in the market. Before making investment in any of these Bonds, the prudent investor should have a look at the salient features of the bonds. Some of the Bonds may be such that their income happens to be completely exempt from income tax. For some bonds the interest received there from may become fully taxable. Some of the bonds are such while carry lower rates of interest but are useful to save capital gains. Thus, before making a choice about investment in a particular Bond care should be taken to go through the salient features of the Bond and the objective of the investor and only then the option should be exercised in favor of a particular bond. However, all types of bonds are completely exempt from wealth-tax.
Similarly, there is no gift, tax liability on making gift of these bonds. However, the Bonds which were to save your capital gains or which were bought by you to bring you the tax benefit under section 80C should not be sold or gifted for a minimum period of three years from the date of their purchase. Likewise the Capital Gain Bonds of NHAI or REC should not be sold or gifted during the lock-in period or else tax liability may be attracted. Investments in certain demarcated bonds are surely going to help the process of tax planning. Also watch for tax free bonds, the prudent investor must watch the details and announcement from time to time in the newspaper.

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