More tax-free options

The Budget has announced tax-free bonds to raise money for infrastructure projects.

"The bonds will offer a good opportunity for those in the higher tax bracket," said Jayant Manglik, president-retail distribution, Religare Securities. Experts said the interest rates on these would depend on the yields of 10-year government bonds.

Tax-free bonds are popular with high net worth individuals as the interest is tax- free. If the holding period is more than a year, investors have to pay long-term capital gains tax - at 20 per cent with indexation or 10 per cent without indexation. Such bonds offer a high degree of safety, as these are issued by top-rated public sector companies.

Another advantage for the common man is that investors will no longer have to incur costs in the form of locker charges to hold physical gold. They can deposit the metal in the government's gold monetisation scheme and earn interest. "Those who hold more than 100 gm of gold can use this scheme to earn interest on their holdings. Jewellers and banks can use this gold instead of importing," said Manglik.

The Budget hasn't spelt out the details but one might get 6-7 per cent returns a year, (interest fully taxed), said experts. The proposed sovereign gold bond, with a fixed rate of interest, will be redeemable in cash according to the face value of gold at redemption. However, this product might be targeted at institutional players.