Infrastructure Bonds in India: Meaning, Benefits & Tax Details

What Are Infrastructure Bonds?

Infrastructure is the backbone of a growing economy, and financing this growth often requires substantial long-term capital. To meet these needs, the Indian government and select financial institutions issue infrastructure bonds — investment instruments that allow investors to participate in the nation’s development while earning periodic returns.

In this guide, we’ll explain what infrastructure bonds are, how they work, their interest rates, tax benefits under Section 80CCF, and the process of investing in infrastructure bonds in India.

Infrastructure bonds are long-term debt instruments issued by government-backed entities or private institutions to fund large-scale infrastructure projects such as highways, airports, power generation, and urban development.

By purchasing these bonds, investors essentially lend money to the issuer, who, in turn, uses the capital to finance infrastructure projects. In return, investors receive a fixed rate of interest over the bond’s tenure.

These bonds play a crucial role in promoting economic growth by bridging the infrastructure financing gap while offering investors an opportunity to earn steady returns.

Infrastructure Bonds in India

In India, infrastructure bonds are primarily issued by public sector undertakings (PSUs) such as:

National Highways Authority of India (NHAI)

Rural Electrification Corporation (REC)

Power Finance Corporation (PFC)

Indian Railway Finance Corporation (IRFC)

These institutions issue bonds to raise funds for developing essential public infrastructure.

For instance, REC and PFC, both government-backed entities, have raised thousands of crores through infrastructure bonds to finance power transmission and renewable energy projects.

Tax Benefits Under Section 80CCF

Under Section 80CCF of the Income Tax Act, investors can claim a deduction of up to ₹20,000 for investing in notified long-term infrastructure bonds.

This deduction is over and above the ₹1.5 lakh limit available under Section 80C, making these bonds attractive for tax planning.

However, the tax deduction benefit under Section 80CCF is applicable only to specific bond issuances notified by the government. Hence, investors must verify eligibility before investing.

Infrastructure Bonds Interest Rates

The interest rates of infrastructure bonds in India typically range between 6% and 8% per annum, depending on the issuer, bond tenure, and prevailing market conditions.

For example, PFC and NHAI have issued bonds offering returns in this range, payable either annually or cumulatively at maturity.

It’s important to note that these rates are generally lower than corporate bonds but higher than traditional savings instruments like fixed deposits of similar tenure, especially when considering tax benefits.

How to Invest in Infrastructure Bonds in India

Investors can invest in infrastructure bonds through the following modes:

1. Primary Issuance (Public Issue)

Investors can subscribe when the issuing company opens the bond for public investment. This is the most direct way to invest.

2. Through Demat Account

Bonds can be purchased in dematerialized form using a Demat account via online trading platforms or brokers.

3. Through Bond Platforms

Registered Online Bond Platform Providers (OBPPs) such as BondScanner allow investors to view, compare, and invest in bonds transparently.

4. Secondary Market

Some infrastructure bonds are listed on the NSE or BSE, enabling investors to trade them in the secondary market.

Government Infrastructure Bonds

Government infrastructure bonds are typically issued by entities under the Ministry of Finance or related PSUs. These bonds are considered relatively low-risk because of the sovereign backing.

For example:

NHAI Bonds fund national highway projects.

PFC Bonds support power generation and transmission projects.

IRFC Bonds finance railway expansion and modernization.

Such bonds provide investors a way to contribute to nation-building while earning reasonable returns over the long term.

Benefits of Investing in Infrastructure Bonds

Tax Benefits – Eligible deductions under Section 80CCF.

Stable Returns – Fixed interest income over a long tenure.

Nation-Building Participation – Funds support critical infrastructure projects.

Low Credit Risk – Issued by government-backed entities with strong credit ratings.

Risks Associated with Infrastructure Bonds

Though considered relatively safe, infrastructure bonds still carry certain risks:

• Interest Rate Risk: Bond values may decline if interest rates rise.

• Liquidity Risk: Some issues may have limited secondary market availability.

• Credit Risk: While rare, there remains a risk if the issuer’s financial position weakens.

FAQs

1. What are infrastructure bonds in India?

Infrastructure bonds are long-term debt instruments issued by government-backed or approved entities to finance infrastructure projects.

2. What is the interest rate on infrastructure bonds?

Interest rates usually range between 6% and 8%, depending on the issuer and market conditions.

3. Are infrastructure bonds tax-free?

Not entirely. However, certain issues notified under Section 80CCF provide deductions of up to ₹20,000.

4. How can I invest in infrastructure bonds?

You can invest via Demat accounts, registered bond platforms, or public issues when the bonds are offered.

5. Are infrastructure bonds safe?

They are considered relatively low-risk, especially when issued by government-backed institutions, but still subject to market and interest rate risks.

Disclaimer

This blog is intended solely for educational and informational purposes. The bonds and securities mentioned herein are illustrative examples and should not be construed as investment advice or personal recommendations. BondScanner, as a SEBI-registered Online Bond Platform Provider (OBPP), does not provide personalized investment advice through this content.

Readers are advised to independently evaluate investment options and seek professional guidance before making financial decisions. Investments in bonds and other securities are subject to market risks, including the possible loss of principal. Please read all offer documents and risk disclosures carefully before investing.