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Bond FAQ's
General
/ Key Terms / Tax related
/ Benefits available u/s. 88 of the Income
Tax Act / Others
General
Key Terms Top
Tax
relatedTop
Benefits available u/s. 88 of the Income Tax
Act Top
Others
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General
What
is a Bond?
A Bond is a debt instrument where the issuer of the Bond agrees to repay
the investor, the amount borrowed and interest, over a specified period
of time.
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How
are Bonds different from Fixed Deposits?
Bonds are similar to Fixed Deposits. Like Bonds, fixed deposit receipts
are normally issued by a bank, a financial institution or a company, for
a fixed period. A specified rate of interest is payable to the investor
at regular intervals. However, unlike Bonds, Fixed Deposits are not transferable.
Also, while Bonds may be secured or unsecured, Fixed Deposits are always
unsecured.
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Key Terms
Tax Saving Bond
A Tax Saving Bond is a
bond, the proceeds of which are to be deployed in accordance with the
Income Tax Act, 1961 in infrastructure projects. The greatest attraction
of it is the tax rebate available under Section 88 of the Income Tax
Act, 1961 in the year in which the amount is invested. Tax saving bond
can either pay you interest regularly (say annuallywhich can be annual
or monthly or quarterly) or it can be in the nature of deep discount
bond.
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Regular
Income Bond
A Regular Income Bond is
a bond, which pays you interest regularly say, annually, half-yearly
etc.. It is designed to meet the needs of people who want regular income.
Subscription to the same does not entitle you to the tax rebate under
Section 88 of the Income Tax Act.
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Deep Discount Bond
A Deep Discount Bond is a Bond, which is sold at an issue price, which
is substantially below its face value. It is repaid on the maturity date
at the face value. The difference between the face value and the issue
price represents income on the investment. These Bonds are also called
Zero Coupon Bonds or Money Multiplier Bonds.
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Face Value of a Bond
The face value of a Bond
is the amount that the issuer agrees to repay the bondholder at maturity
date. This amount is also sometimes referred to as par value, maturity
value, redemption value or principal value.
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Issue
Price
Issue price of a Bond is
the price at which the Bond is originally issued by the issuer to the
investors.
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Tenure
of a Bond
The tenure of a Bond is the
time period between the date of issue and the date of maturity.
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Maturity
date
The date on which the principal is required to be repaid is known as the
maturity date.
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Coupon
Rate of a Bond
The coupon rate is the interest
rate that the issuer agrees to pay each year. The coupon rate multiplied
by the face value of the Bond gives the Rupee amount of the coupon. For
example, if an investor purchases a Bond of face value Rs.5,000/- having
a coupon rate of 7% payable annually, then the investor will receive Rs.350
each year as interest or coupon throughout the tenure of the Bond.
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Bond Certificate
A Bond Certificate is a certificate,
which establishes the title of the Bondholder to the Bonds specified therein.
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Consolidated
Bond Certificates
An investor opting for a
consolidated certificate will receive one certificate for the total number
of Bonds invested in.
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Market
Lot
Market lot is the minimum
number of Bonds that can be traded on the stock exchange.
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Deemed Date of Allotment
The Deemed Date of Allotment is typically
fixed as 30 days from the date of closure of the Issue or date of utilisation
of proceeds, whichever is earlier. All benefits relating to the Bonds
will be available to the investors from the Deemed Date of Allotment.
The actual allotment may occur on a date other than the Deemed Date
of Allotment. No interest on application money will be paid to any investor
till the Deemed Date of Allotment.
Tax related
What is the concept of Tax Deducted at Source (TDS)
in respect of interest on Bonds?
As
per the current provisions of Income-tax Act, 1961, (Act) , Tax Deduction
at Source (TDS) is deducted on interest on Bonds where interest paid
or payable to a resident individual bondholder exceeds Rs.2,500/- in
a financial year. In case of all non-resident bondholders, tax will
be deducted at source on interest at the rates as per prevailing Income-tax
Act, 1961, or Double Taxation Avoidance Agreement, whichever is lower,
subject to submission of relevant documents and fulfillment of conditions
as may be amended from time to time. Certain specified entities whose
income is unconditionally exempt under section 10 of the Act and who
are statutorily not required to file return of income as per section
139 of the Act, CBDT has vide Circular no.4/2002 dated July 16, 2002,
granted blanket TDS exemption. Alternatively, valid certificate under
section 197 issued by your Assessing Officer can be submitted within
the prescribed time frame for availing the benefit of lower or nil rate
of TDS.
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What
should I do if I am not liable to pay tax and TDS is not required to be
deducted?
To
avail the benefit of deduction of tax at source at Nil/lower rate, you
may submit any of the following documentation :
Certificate from the Indian tax authorities :
Certificate under section 197 of the Act issued by the Assessing Officer
for nil / concessional rate of TDS can be submitted by any bondholder
including companies and firms. The certificate should be submitted by
the bondholder to ICICI Infotech.
Form 15G:
If you are a resident person (other than a company, Co-operative society
or a firm), you can submit Form 15G in duplicate to the registrar/company.
As per the provisions of section 197A of the Act, Form 15G can be submitted
provided the tax on your estimated total income for the financial year
computed in accordance with the provisions of the Act is NIL ) and the
interest paid or payable to you does not exceed the maximum amount which
is not chargeable to tax. The maximum amount of income not chargeable
to tax in case of individuals and HUFs is presently Rs. 50,000 per annum.
Form 15H :
If you are a senior citizen, i.e. if you are of the age of 65 years
and above at any point of time during the financial year, you can submit
Form 15H even if your income paid or payable exceeds Rs.50,000 p.a.
for the purposes of non-deduction of tax at source if your estimated
total income for the financial year computed in accordance with the
provisions of the Act is NIL.
Entities exempt from tax as per CBDT Circular:
Certain specified entities whose income is unconditionally exempt under
section 10 of the Act and who are statutorily not required to file return
of income as per section 139 of the Act, CBDT has vide Circular no.4/2002
dated July 16, 2002, granted blanket TDS exemption. Some examples of
the specified entities are provident funds, gratuity funds, local authority,
hospitals exempt under section 10(23C)(iiiac), educational institutions
or university exempt under section 10(23C)(iiiab).
Exemption for
insurance companies:
Certain entities such as Life Insurance Corporation of India, General
insurance Corporation of India alongwith its four subsidiaries or any
other insurer are eligible to receive interest on securities without
deduction of tax at source, if such securities are owned by them or
it has full beneficial interest in the same.
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When
and how do I obtain the TDS certificates?
In
the case of half- yearly/yearly interest payments, the TDS certificate
are printed on the reverse side of the counterfoil of the interest warrants.
Thus, you would receive the TDS certificate with the interest warrant.
In the case of post dated monthly & quarterly warrants that are
dispatched in advance, a consolidated TDS Certificate (Form 16A) is
sent in the month of April of every year to the address specified by
you.
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Where can I obtain the
Form 15G/15H from? When is it required to be submitted?
ICICI
Bank as an investor friendly measure sends Form 15G to the investors.
In case the investor does not receive the same, he can write to ICICI
Infotech Limited at Maratha Mandir Annexe, Dr. A.R.Nair Road, Mumbai
Central, Mumbai-400 008.
You will have to send Form 15G/Form 15H duly filled in to ICICI Infotech
Limited at the above address at least one month prior to the Interest/Redemption
payment date. Form 15G/15H is required to be submitted every financial
year.
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What
are the tax implications on Deep Discount Bonds (DDBs)?
The
tax treatment of DDBs will be in accordance with and subject to the
conditions in the CBDT clarification F. No. 149/235/2001-TPL dated February
15, 2002 which are given in brief as under:
(a) Every bondholder will have to offer to tax the difference between
the market valuation made in accordance with the guidelines issued by
RBI as on two successive valuation dates (i.e. March 31 each financial
year) as interest income (where the bonds are held as investment) or
business income (where the bonds are held as trading asset). For this
purpose, market values of different instruments declared by the RBI
or by the Primary Dealers Association of India jointly with the Fixed
Income Money Market and Derivatives Association of India may be referred
to. In a case where the bond is acquired during the year, the difference
between the market value as on the valuation date and the acquisition
cost, will be taxed as income.
(b) On transfer
of bond before maturity, the difference between the sale price and the
cost will be taxable as short-term capital gains or business income,
as the case may be. For computing such gains, the cost of the bonds
will be taken to be the cost of acquisition plus the income offered
to tax in the earlier years as explained in clause (a) above.
(c) In case of redemption,
the difference between the redemption price and the value as on the
last valuation date immediately preceding the maturity date will be
taxed as income.
In case of an intermediate purchaser, the difference between the redemption
price and cost of bond will be taxable as income. For this purposes,
the cost of the bond will be taken to be the cost of acquisition plus
the income offered to tax in the earlier years as explained in clause
(a) above.
(d) A non-corporate
investor holding DDBs upto an aggregate face value of Rs.1 lakh may
opt to offer income for tax in accordance with earlier CBDT clarification
dated March 12, 1996. The clarification states that the difference between
the redemption price and subscription price would be treated as interest
income assessable under the Income-tax Act in the year of maturity.
It further states that on transfer of bonds before maturity, the difference
between the sale price and issue price will be treated as capital loss/gains
if held by the assessee as investments or as trading profit/loss if
the assessee dealt in purchase of sale of bonds, securities, etc.
(e) The difference
between the issue price and redemption price will be subject to tax
deduction at source under section 193 of the Income-tax Act in the year
of maturity.
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Do I get the
deduction under section 80L of the Income tax Act, 1961?
As per the provisions of Finance Act, 2004, ICICI Bank Bonds which are
notified by Central Board of Direct Taxes (CBDT) will qualify for deduction
upto Rs.12,000 in accordance with and subject to the provisions of section
80L.
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Benefits
available u/s. 88 of the Income Tax Act
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What
is the difference between a Tax Saving Bond and a Regular Income Bond?Which
of these should I invest in for obtaining a tax rebate under Section
88 of the Income Tax Act 1961?
The Tax Saving Bond is a bond, the proceeds of which are to be deployed
in accordance with the Income Tax Act, 1961 in infrastructure projects.
Tax saving bond can either pay you interest regularly (say annually)
or it can be in the nature of deep discount bond. The greatest attraction
of the Tax Saving Bond is the tax rebate available under Section 88
of the Income Tax Act, 1961 in the year in which the amount is invested.
On the other hand, a regular income bond is a bond which pays you interest
regularly say, annually, half-yearly etc. It is designed to meet the
needs of people who want regular income. Subscription to the same does
not entitle you to tax rebate available under Section 88 of the Act.
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Who can avail the tax rebate under Section 88?
The
rebate is available only to individuals and Hindu Undivided Family (HUF's).
Non Resident Indians (NRI's) can also avail of the rebate under section
88 read with the Special Provisions of chapter XII-A of the Income Tax
Act, 1961.
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What
is the maximum amount eligible for rebate?
As
per the Finance Act 2004, the maximum limit for availing the benefit
of tax rebate under Section 88 of the Income Tax Act, 1961 ('Act') is
fixed at Rs.1,00,000/-. Out of this, Rs.30,000/- can be invested only
in eligible issue of capital, the proceeds of which are to be utilised
in infrastructure projects. Tax Saving Bonds offered by ICICI Bank is
one such eligible investment for this purpose.
This means that out of the overall limit of Rs.1,00,000/-, Rs. 30,000/-
can be invested only in such issues like the Tax Saving Bonds offered
by ICICI Bank. Further to Rs. 30,000/- one can also invest the balance
Rs. 70,000/- in these Bonds to avail the benefit under Section 88 of
the Act. Thus it may be noted that the investors may invest the entire
amount of Rs. 1,00,000/- in these bonds for availing benefit of rebate
under section 88 of the Act.
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What
is the rate of rebate under Section 88 in respect of investment made
in ICICI Bank tax saving bonds?
Under the current tax laws as per the Finance Act 2004, the rebate available
on the amount invested is available on subscription to the Tax Saving
Bond in case of Individuals and HUFs subject to and in accordance with
the provisions of Section 88 of the Income-tax Act, which are explained
in brief as below:
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Gross
Total Income before giving effect to the deduction under Chapter
VIA (Rs.)
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Rebate
under section 88*
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0 - 150,000
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20% **
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150,001 - 500,000
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15%
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500,001 & Above
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Nil
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* Rebate under section 88
is available on the aggregate of the sums paid or deposited, including
subscription to Tax Saving Bonds of the Issuer Company.
** An individual would be entitled to an enhanced rate of rebate @ 30%
if his income chargeable under the head "salaries" does not
exceed Rs.1,00,000 before allowing deduction under section 16 and is
not less than 90% of the gross total income subject to prevailing provisions
under section 88 of the Income-tax Act.
If aggregate investment of a lower amount is made, tax rebate would
be available at the applicable rate as specified above of the amount
so invested, subject to fulfillment of prescribed conditions.
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Is the
tax rebate available in the year of investment or is it available for
the entire tenure of the bonds?
Tax
rebate is availed in the year in which the amount is invested in the
bonds.
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What is the minimum holding period in case of tax
saving bonds?
To avail of benefit under Section 88, such investment needs to be held
for a period of three years from the date of acquisition of bonds. If
these are sold or otherwise transferred within the period of 3 years,
from the date of acquisition of bonds, the tax rebate availed of earlier
would become tax payable in the year of sale or transfer.
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Others
What is the procedure
for redemption of bonds?
For bonds held in physical
form, the bondholders are required to surrender the bond certificates
duly discharged by the sole holder/ all the joint holders at least one
month prior to the redemption date. ICICI Bank may however redeem the
bonds without requiring the surrender of bond certificates. In such
a case, the redemption proceeds would be paid to those bondholders whose
names appear in the Register of Bondholders as on the record date fixed
for this purpose.
In case of bonds held in
electronic form, no action is required on part of the Bondholders and
the redemption proceeds would be paid to those bondholders whose names
appear on the list of beneficial owners given by the Depositories to
the Company. Presently, ICICI Bank has obtained the necessary approval
for despatch of the redemption proceeds without requiring the surrender
of the original bond certificates by the bondholders. The redemption
warrants are dispatched to the investors on or before the due date of
payment to the address recorded with us.
However, the necessary redemption forms (intimation
of redemption) are sent to the investor informing them the redemption
procedure.
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What information should
I provide in a correspondence to ICICI Bank to facilitate a quick response
to my queries?
Kindly provide the following information
to facilitate a quick response:
- Name and Address of bondholder.
- Bond Certificate Number.
- Distinctive Number
- Folio Number
- Issue Details (year-month of issue, etc.)
All these details are available on the Bond
Certificate.
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How to change the address / bank details
/ bank mandate on record ?
A request letter {mentioning the new address/
bank details i.e. name of the bank, branch, account no., ( complete address
of your banker in case of bank mandate) and bondholder number } duly signed
by the first holder is to be sent to the address given below.
Address for correspondence:
ICICI Infotech Limited
Maratha Mandir Annexe
Dr. A R Nair Road
Mumbai Central
Mumbai 400 008
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When are the warrants are usually dispatched
?
The interest / redemption warrants are normally
dispatched 3-4 days prior to the due date of payment
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What is the communication address where
the queries/ change in the address/ bank details can be sent ?
ICICI Infotech Limited
Maratha Mandir Annexe
Dr A R Nair Road
Mumbai Central
Mumbai 400008
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Where can I email my queries relaing to ICICI Bank Bonds ?
All emails pertaining to ICICI Bank Bonds
should be marked to investor@icicibank.com
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