 "U-turn : REC revises retail cap for tax-free bonds to Rs 5 lakh")
Retail investors who were earlier dissuaded from investing in the tax-free bonds of the Rural Electrification Corporation (REC) because of a reduction in the investment limit from Rs 5 lakh to Rs 1 lakh, can now rejoice. The cap has been revised to Rs 5 lakh.
According to a press release sent to the stock exchanges, “any individual investor investing upto Rs 5 lakh shall be treated as retail investor and any individual investor investing more than Rs 5 lakh shall be treated as a high net worth individual”. This comes less than a month after the Central Board of Direct Taxes (CBDT) arbitrarily reduced the retail investor cap to Rs 1 lakh.
[caption id=“attachment_237532” align=“alignleft” width=“380” caption=“From the present division of the Rs 5 lakh category, it seems clear that retail investors stand to gain 0.2 percentage points more by way of interest on investments of Rs 5 lakh and below. Reuters”]
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The Rs 1,500 crore REC bond issue opened on Tuesday with an option to retain oversubscription up to an aggregate of Rs 3,000 crore.
According to a Reuters report, the tax-free bonds have received bids worth more than 2.5 times the base size on the first day of opening.
The tax-free bonds offer a coupon rate of 8.13 percent (10 years) and 8.32 percent (15 years) for investments below Rs 5 lakh and 7.93 percent (10 years) and 8.12 percent (15 years) for investments above Rs 5 lakh.
From the present division of the Rs 5 lakh category, it seems clear that retail investors stand to gain 0.2 percentage points more by way of interest on investments of Rs 5 lakh and below.
Some points to ponder over :
• The REC issue is the first issue to shut out foreign institutional investors, non-resident Indians and overseas corporate bodies from participating, as per a Business Standard report .
•The income by way of interest on these bonds is fully exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act, 1961 and shall not form a part of the total income.
• The issue has a short shelf life and closes on 12 March. The earlier NHAI, PFC and Hudco tax-free bonds were open for longer periods.
• Key policy rates are expected to fall in the second half of the year, so investors are better of locking in at higher rates now.
• The minimum application size is Rs 5,000.
• The issue has been rated “AAA/Stable” by Crisil, Care and Icra.