HUDCO Tax – Free Bonds January 2016 Issue Review
The Housing and Urban Development Corporation Limited (HUDCO) is a Government organization which deals with financing in housing sector and urban development sector. The HUDCO is launching a new set of low risk, high stability bonds for the common masses, which will be entirely tax – free. This issue of tax – free bonds will be done by the end of this month – January 2016. The main motto of HUDCO is to reach out to the Indian masses and provide them housing finance in low interest rates where one can put their money and stay assured of good returns. The new plan to be launched will have 7.64 % interest rate.
More about Housing and Urban Development Corporation Ltd.
The Housing and Urban Development Corporation Ltd. began its journey from April, 1970. It is a totally Government of India undertaking organization and perform its operations under the regulations of Ministry and Housing, Govt. of India. The main motto of launching the HUDCO was to provide affordable and safe housing loans and rehabilitation assistance to the common people. The HUDCO is an ISO 9001: 2000 certified, Govt. undertaking company. As this is a wholly government organization, so there is a guarantee of total transparency in the housing investment.
Date of issue and closing date of the new HUDCO tax – free bonds
The new bonds that will be issued by the end of January will be totally tax exempted. The starting date of issue of issue of these bonds is 27-01-2016 (Wednesday) and the last date of purchase of these tax – free bonds is 10 -02- 2016 (Wednesday). So these bonds will be given only for a limited period of time. So to purchase them, one has to grab them at earliest. Government housing bonds are low interest and tax free bonds.
Eligibility and Nature of these tax free bonds from HUDCO
These housing bonds can be purchased by any Indian individual or any member of Hindu Undivided Family (HUF). The Non residential Indians (NRIs) are not eligible for these tax free bonds. The face value of each bond is Rs. 1000 under the new plan. A beneficiary will have to purchase a minimum of five bonds under this scheme. This is the minimum criteria of investment. So the minimum investment amount is Rs. 5,000. There is no maximum limit of investment, as such. These bonds are of two categories – Series 1, with tenure of 10 years and Series 2, with tenure of 15 years. The interest payable under this plan will be calculated annually.
Terms and conditions of these bonds
An investor can buy these tax free bonds with a minimum amount of five bonds i.e. for Rs. 5,000. The HUDCO is planning to put these bonds under the administration of Bombay Stock exchange (BSE). These bonds have got AAA ratings from various certifying agencies and this shows the reliability of these bonds. The interest which will be earned by investing in this plan will be totally tax free under Section 10 (15) IV (h) of Income Tax Act, 1961. These bonds can be easily transferred from one beneficiary to another via secondary stock market by paying a service tax in form of capital gain. The service tax will be 10 % if transfer of bonds is done after the completion of one year.
Issue size of the HUDCO tax free bonds
The HUDCO has planned to issue bonds worth Rs. 1,711.5 crore to the investors. This issue is a limited period offer and the last date is 10th Feb. 2016. The allotment of the bonds is totally first come, first serve. According to sources, their main customers will be from the retail sector. Near about 40 % of the bonds are reserved for the investors belonging to the retail sector. The Qualified Institutional Buyers (QIBs) will be issued around 20 % of the total issue of bonds. The rest issue will be done to other general investors.
What is record date and what is the benefit on the Application money?
Whenever a person applies for the housing bonds from HUDCO, it is not sure if they will surely be allotted the bonds. There are two categories of interest distribution on the basis of bon allocation. If bond is allotted, then the interest earned would be 7.64 %. If there is no allocation of bonds, but the person has applied for it, then the interest that will be given is 5 %. The term record date means the date on which the bonds gets matured or basically when the beneficiary gets interest on the bonds.
Why HUDCO bonds are the safest housing investment available in the market?
HUDCO bonds are owned and administered by the Government of India, under the Ministry of Housing and Urban Development. So investing in a plan controlled by the government is not only risk free, but also is transparent and you can resolve any grievances quickly. The market is always facing highs and lows. No one can predict about its future and private companies will never take risks of your valuable money. Moreover, the new bonds to be launched by the HUDCO have tax benefits. That means the interest earned on investing in these bonds are totally tax exempted.
Facilities for Retail investors and Non – retail investors
As it is clear that HUDCO is expecting more investments from the retail sector, it will give some benefits in interest earned. For the retail sector investors, the rate of interest for investment above Rs. 10 lakh in 10 year tenure bond is 7.27 % and for 15 year tenure bonds, the interest rate is 7.64 %. This interest rate for the retail investors decreases with increase of investment above Rs. 10 lakh. They will get less interest of 0.25 % in each category. That means for 10 year tenure bonds, the interest in this case will be 7.02 % and for 15 year tenure bond, it is 7.39 %. Those who are not from retail sector will lesser rate of interest, by 0.25 %.
Procedure of Investment in the HUDCO tax fee bonds
The issue of these tax free bonds from the house of HUDCO will be done by two methods. One is by demat form and another using physical form. For investment by demat form submission, you must visit your broker and ask him to open the demat account. After successful login to the demat account, you can easily register for the HUDCO tax free bonds from the ‘Bonds’ link. Else you can apply by physical form submission. For this, you can visit the website – www.edelweissfin.com and apply for the HUDCO tax free housing bonds, 2016.
Different interest rates for different categories
The HUDCO bonds launching on 27the January 2016 will be eligible for tax exemptions. The rate of interest earned, which is to be calculated annually, will be divided as per bond tenure and as per nature of the investor. The rates for retail investors are different where as the rates of individuals are again sub categorized as per different tax brackets. The face value of each bond irrespective of the investor is Rs. 1,000.
|Category of Investors||Interest rate per annum for Tenure 1 (10 years)||Interest rate per annum for Tenure 2 (15 years)|
|Retail Investors||7.27 %||7.64 %|
|Non-retail investors in 30.9% tax bracket||10.52 %||11.06 %|
|Non-retail investors in 20.6% tax bracket||9.16 %||9.62 %|
|Non-retail investors in 10.3% tax bracket||8.10 %||8.52 %|