Tax free bond

This query is : Resolved

Rahul Malhotra (Querist)
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15 October 2013 Sir,please tell me. we can invest money in tax free bond out of salary. So the salary amount which have invested in tax free bonds are taxable. For example our salary is 12 lac rupees and we invest 5 lac in tax free bond
1. Can we invest 5 lac in tax free bonds
2. Then we have to pay tax on 7 lac rupees or 12 lac rupees

Nikhil Kaushik

Nikhil Kaushik (Expert)
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15 October 2013 No. tax free bonds are tax free in respect to the interest income earned on such bonds which is exempt under section 10(15)(iv)(h).

Earlier there was deduction under 80ccf for Rs 20,000. However, it was discontinued fro AY 2013-14.

Hence you shall have to pay tax on Rs 12 lakhs. However, any interest earned ont ax free bonds shall not be taxable.

Rahul Malhotra

Rahul Malhotra (Querist)
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15 October 2013 After sell these bond we also need to pay tax or not

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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16 October 2013 Only the interest is exempt.

sale of these bonds is a capital transaction and is chargeable to tax as capital gains - whether short term capital gain or long term shall depend on the holding period.