A lot of investors tend to get confused between the two types of tax-friendly avenues that are getting popular these days - Tax Free Bonds and Tax Saving Bonds. However, it is critical to note the difference between the two

Indian Railway Finance Corporation Limited (IRFC) has issued Tax Free Bonds to raise money from the market to finance the outlay of Indian Railways. The issue would open for subscription from Friday, January 27, 2012 and the scheduled date of closure would be Friday, February 10, 2012

Issue Size and Credit Ratings:
The issue size is Rs. 6,300 crores and the issue has been rated CRISIL AAA and CARE AAA by CRISIL and CARE respectively, which is their highest rating. Out of the total issue size, 30% would be reserved for Retail Investors (Retail Investor can make investment upto Rs.5 Lakhs)

Face Value and Minimum Investment
The Face Value of each bond would be Rs.5,000/- and the minimum investment would be Rs.10,000/-. The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under Section 10 (15) of IT Act. Moreover, there will be no deduction of tax at source from the interest, which accrues to the bondholders on these bonds irrespective of the amount of the interest or the status of the investors

Interest Rate and options available:

Indian Railway Finance Corporation Limited (IRFC) has proposed to issue Tax Free Bonds to raise money from the market to finance the outlay of Indian Railways.

The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under Section 10 (15) of IT Act. Moreover, there will be no deduction of tax at source from the interest, which accrues to the bondholders on these bonds irrespective of the amount of the interest or the status of the investors

IRFC is the financing arm of the Indian Railways and a Public Financial Institution under Section 4A of the Companies Act, 1956, which is fully held by Government of India

Click here for complete details on IRFC Tax Free Bonds