Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: VAT RATES :: TAX RATES - GOODS TAXABLE @ 4% :: list of goods taxed at 4% :: ACCOUNTING STANDARDS :: ACCOUNTING STANDARD :: form 3cd :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: articles on VAT and GST in India :: cpt :: empanelment :: due date for vat payment :: VAT Audit :: Central Excise rule to resale the machines to a new company :: TDS :: ARTICLES ON INPUT TAX CREDIT IN VAT
News Headlines »
 6 important income tax rules for individuals which will change from April 1, 2017
 Key changes in income tax rates individuals need to look at from 1 Apr
 Provisional Enrollment under Goods and Service Tax (GST)
 Ten income tax changes that will come in to effect from April 1
 New income tax provisions you need to be aware of
 8 benefits you must know about this tax-saving mutual fund
 10 most important income-tax changes which will apply from April 1
 Delhi: 54 CAs, company secretaries on radar in I-T crackdown against black money
 10 Income Tax Rules That Will Change From April. See Details Herea
 Looking for last-minute tax planning with Section 80C investments? Here's help
 Aadhaar mandatory for filing income tax return

Tax 2010-11: Should you invest in?
March, 09th 2010

One of the fresh tax reliefs that has come as an outcome of the budget 2010 is the deduction allowed for investing upto Rs 20000 in the infrastructure bonds. Many articles and the FM have said that this is a very positive thing. But how can the same thing be positive for every individual. If not negative it should at least be neutral for many.

Else life would be so boring. This article will try to look the pros and cons of investing in Infrastructure bonds for the sake of tax saving. The analysis will be from the perspective of the different tax groups post budget 2010.

Tax group 1: Taxable income Rs. 1.6-5 lakhs

Tax group 2: Taxable income Rs. 5-8 Lakhs

Tax group 3: Taxable income above Rs. 8 lakhs


To understand the pros and cons of any tax saving investment we need to look at 4 major parameters

Actual tax saving (lets take the highest saving possible).

Returns from the investment (during the lock in period at the least).

Opportunity cost (what if the same money had been invested in some other investment?).

Effect of Inflation on the returns on investment (what would the worth of your investment be when it comes to redeem/encash it?).


For the sake of parameter two we will have to take an assumption on the lock-in period (as nothing has so far been announced by the Finance Minister). As is generally the case with most tax saving instruments we can assume two scenarios 3 year lock-in and 5 year lock-in

Lets assume the rate of return on infrastructure bonds = 5.5% per annum.

Lets consider overall rate of inflation to be 8%. (Food inflation itself is currently at 18 %).

For people in the 1.6- 5 lakh taxable income group, as per the new norms the income will be taxed at a rate of 10%.


Parameter 1: Actual tax saving: 10% of Rs 20,000 = Rs 2000 (if you invest Rs 20000 in the instrument you get to reduce your taxable income by 20,000 thus giving a 10% benefit)

Parameter 2: What will be the returns at the end of the lock in period? For a lock in period of 3 years an investment of 20000 would fetch an income of Rs. 3484. When added to the tax saved we get an effective return of Rs 25485 (Rs 20000+3484+2000) on our investment

Parameter 3: If this same amount were to be invested in a market instrument that fetched a return of 15% (which is very reasonable considering that the benchmark Sensex and many mutual funds have given comparatively higher returns on a long period.) the investment would fetch an effective return of Rs 27, 376 (Rs 20000-2000=Rs 18000 invested @15% per annum for 3 years).

Countering inflation

Parameter 4: What would be the minimum amount required to counter inflation at 8%? The amount would be Rs 25, 194.

Thus we see that for a person in the slab of 1.6-5 lakh the benefit out of investing in an infrastructure bond as a tax saving instrument will be only Rs 291 (Rs 25485-25194) whereas the benefit out of paying the tax and investing the balance in any decent instrument would be Rs 2182.

Click here to see the benefits for each segment as well as for a scenario where the lock in period is 5 years.

As seen from the table, it makes sense for people in the >Rs 8 lakh taxable income slab to use the infrastructure bonds as a tax saving instrument. For the people in the 5-8 lakh bracket it would be advisable to invest in infrastructure bonds if the period of investment is 3 years but not for five years and for those in the 1.6-5 lakh bracket it would be an absolute no-no to invest in Infrastructure bonds for tax saving purpose.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Vision

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions