Tax Free Bonds What You Need to Know Before Investing

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Tax Free Bonds: What You Need to Know Before Investing

Looking for an easier and more reliable way to minimize your tax burden? Tax-free bonds are a great way to maximize your earnings while minimizing your tax burden. Generally, Government Bonds are fixed-income securities issued and backed by the government of India but the interest on the same is taxable. Tax-free bonds are issued by government entities, and they are essentially loans you make to government entities in exchange for a fixed interest rate. These bonds are attractive because they offer a steady income with no taxes on the interest earned. Like Government Bonds, Tax-free bonds are also risk-free investment options with almost negligible credit risk. However, before you jump into investing in tax-free bonds, it is essential to understand the fundamentals of this fixed-income security to make an informed decision. If you’re new to investing in fixed-income securities, this guide will explain everything from how tax-free bonds work, to why they might be right for your portfolio.

Overview of Tax-Free Bonds

Tax-free bonds are fixed-income securities issued by public undertakings that offer investors tax-free interest income. One of the major advantages is that the interest on tax-free bonds is completely tax-exempt as per section 10 of the Income Tax Act, 1961. Tax-Free bonds are usually issued for longer maturity of 10 years or more. Government entities like PFC, etc. issue tax-free bonds to raise money for various projects like infrastructure and housing. The rate of interest on tax-free bonds is determined on the basis of factors like the prevailing Government Bond interest rate, the tenure for which bonds are issued, the credit rating of the issuer, etc.

How do Tax-Free Bonds Work?


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