When it comes to earning steady income without worrying about tax deductions tax free bonds are one of the most attractive options for investors in India. These bonds offer fixed annual interest and the best part is that the interest is completely exempt from income tax. If you are someone who wants safety tax savings and predictable returns this form of bonds investment is worth considering.
Although new tax free bonds are not being issued currently many of them are actively traded in the secondary market. Thanks to digital platforms it is now easier than ever to buy tax free bonds online. Here is a step-by-step guide to help you get started.
Step 1: Understand What Tax-Free Bonds Are
Before making any investment it helps to know what you are buying. Tax free bonds are issued by government-backed institutions like REC PFC NHAI IRFC and HUDCO. These bonds typically come with long maturities ranging from 10 to 20 years and offer annual interest payouts. The interest earned is exempt from tax under Section 10(15)(iv)(h) of the Income Tax Act.
Because these bonds are issued by highly rated public sector companies they are considered very safe and suitable for long-term income planning.
Step 2: Open a Demat and Trading Account
To buy tax free bonds online you need a demat account and a trading account. These are the same accounts you would use to buy shares. If you already have these accounts you can proceed to the next step. If not you can open them through a bank or a SEBI-registered broker. The process is simple and can often be completed online.
Step 3: Choose a Reliable Online Platform
There are several online bond platforms in India that list tax free bonds available for purchase in the secondary market. These platforms allow you to compare bonds based on maturity year interest rate yield to maturity and price.
Make sure the platform is SEBI-regulated and offers clear information about each bond. You can also use your trading account linked to the stock exchanges like NSE or BSE to buy these bonds directly.
Step 4: Browse Available Tax-Free Bonds
Once you log in to the platform search for tax free bonds issued by institutions like NHAI PFC or IRFC. These bonds may be available at a premium or discount depending on market demand and interest rate trends.
Key details to check:
- Coupon Rate: The fixed interest you will earn annually
- Maturity Date: The time when your principal will be returned
- Credit Rating: Most are AAA-rated but always confirm
- Price and Yield: Higher price means lower yield and vice versa
Look for bonds that match your income needs and investment horizon.
Step 5: Place Your Order
After selecting the bond you want to buy enter the quantity and place your order. You will see the total cost based on the market price. Make the payment using your trading account or linked bank account. Once the trade is settled the bonds will be credited to your demat account.
You will start receiving annual interest directly into your bank account on the scheduled date set by the bond issuer.
Step 6: Track and Hold
You can log in to your demat account anytime to view your holdings. If you plan to hold the bond till maturity you will receive fixed interest every year and your investment will be returned on the maturity date. If needed you can sell the bond before maturity through the same platform.
Final Thoughts
Tax free bonds offer a rare combination of safety fixed returns and tax efficiency. With digital access it has become very easy to buy tax free bonds online and include them in your long-term bonds investment plan. Whether you are planning for retirement or simply want to earn tax-free income these bonds can be a smart addition to your portfolio.
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