So, now that the deduction of 20,000 INR is available under infrastructural bonds, more and more people would want to know about this and the bonds. Of course, according to our finance minister, it is a good thing. However, this does not hold for everyone. It can be compared to a medicine. Say all the ingredients are natural and no chemicals are added to the medicine. So, the remedy is side-effects free for almost everyone. Yet, the medicine may cause allergy to those who are allergic to ingredients.
It may seem an absurd comparison, but take a close look at it and you will find that while everything that is said to benefit everyone may actually benefit 90%, the 10% left would be either neutral or adversely effected by the things.
So, now, the case is with infrastructural bonds. When you look forward to any kind of investment, you must keep in mind the following things:
- Savings on tax
- Return availed from the investment
- Opportunity cost
- Inflation effect on investment’s return
Now we must analyse the effect of investing in infra bonds for people falling in each income tax slab seperately:-
- Tax Slab 1: Taxable income Rs. 1.6-5 lakhs
- Tax Slab 2: Taxable income Rs. 5-8 Lakhs
- Tax Slab 3: Taxable income above Rs. 8 lakhs
When you consider the investment made as per the three categories in the tax slabs, you will see that infrastructure bonds can benefit the ones falling in the category of Rs. 8,00,000 and above annual income. Those in this income slab would be able to make sound tax-savings.
For the ones falling in middle income slab(Taxable income Rs. 5-8 Lakhs), these bonds are beneficial, if they are of duration three years and not more than that. The longer duration would not serve any purpose. So, if you want to invest in these bonds, make it for three years only. Currently, there is no Infrastructure Bond in market that has lock-in period of less than 5 years and so people in middle income slab should also stay away from investing in Infrastructure Bonds.
Also if you are in the first income slab of 1.6-5 lakh INR, then these bonds are not for you at all. They would not serve as a good investment option.
For people in lower and middle income slab it would be better to pay the tax and invest the balance in any decent instrument like well diversified balanced mutual fund. You will make more money this way even if that mutual fund gives moderate return of 15% per annum.