There are many types of bonds, and each has its own unique characteristics.
Portfolio managers always say one thing to keep your portfolio diversified. This includes equity as well as debt. Know what are the tax rules regarding investment in bonds.
As an investor, it is considered better to invest in bonds when you are looking for a safer option for yourself. It is a debt instrument, in which you get fixed returns. The return on investment in the equity market is high, but the risk is also high. On the other hand, debt instruments have low returns but are fixed.
This is the reason why debt funds offer lower returns when you invest in mutual funds, whereas equity funds offer better returns. Bonds, debentures, leases, certificates, bills of exchange are the major debt instruments. In this article, we will know specifically about investing in bonds. What are the benefits of investing in this and what are the rules regarding tax, let us try to understand in detail about it.
Keep portfolio diversified and balanced
Portfolio managers always say one thing to keep your portfolio diversified. This includes equity as well as debt. This will also give good returns on net basis and the portfolio will also be safe. If you want to invest in bonds, then there are many types available in the market.
Each bond has its own specialty
The time period, tax benefit, coupon rate and lock-in period are different for different bonds. While some bonds offer taxation benefits, many bonds offer higher interest rates than fixed deposits. If the duration of the bond is long, then long term capital gains tax is also payable.
Features of 54EC Bonds
Bonds issued by National Highways Authority of India (NHAI), Rural Electrification Corporation, Power Finance Corporation and Indian Railway Finance Corporation are unlisted. This is 54EC Bonds. In this, tax has to be paid on the interest, although long term capital gains are tax free. Minimum 10 thousand and maximum 50 lakh can be invested.
interest is taxed
Interest income is taxable on investment in listed bonds. Short term capital is also taxable, while long term capital gains are taxed at the rate of 10.40 per cent. More than 1 year is considered long term.
tax free bond
The tax free bond which is listed under section 10(15) is for a long period. There is no tax on interest income. However, tax is to be paid for short term and long term capital gains. A tax-free bond that is unlisted is considered to have a long term of more than 3 years. For this, long term capital gains are taxed at 20.80 per cent.
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