Section 10(15), item (h) of sub-clause (iv) of the Income-tax Act, 1961 - Exemptions - Interest on bonds/debentures - Notified bonds/debentures of Public Sector Companies
Notification No. 07/2012 was published on 14 February 2012. Its subject is Section 10(15), item (h) of sub-clause (iv) of the Income-tax Act, 1961 - Exemptions - Interest on bonds/debentures - Notified bonds/debentures of Public Sector Companies.
This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.
The notification authorises the Rural Electrification Corporation Limited, under item (h) of sub-clause (iv) of clause (15) of section 10, to issue by public issue during the financial year 2011-12 tax free, secured, redeemable, non-convertible bonds of Rs. 1,000 each aggregating to Rs. three thousand crores. It attaches conditions: the tenure of the bonds shall be ten or fifteen years; the subscriber must furnish his Permanent Account Number to the issuer; the rate of interest shall be not less than fifty basis points lower than the yield on Government Securities of equivalent residual maturity as reported by the Fixed Income Money Market and Derivative Association of India as on the last working day of the month immediately preceding the month of issue; the commission on sale is capped at a flat fee of 1.25 per cent of the issue size, inclusive of all issue expenses, with brokerage not exceeding 0.15 per cent for Qualified Institutional Buyers and corporates and 0.35 per cent for High Networth Individuals. The exemption is admissible only if the holder registers his, her or its name and the holding with the entity, and the bonds must be issued only by public issue and not by private placement.
Section 10(15), item (h) of sub-clause (iv) of the Income-tax Act, 1961 - Exemptions - Interest on bonds/debentures - Notified bonds/debentures of Public Sector Companies
Notification No. 7/2012 [F.No.178/56/2011-(ITA.I)], dated 14-2-2012
S.O. (E).- In exercise of the powers conferred by item (h) of sub-clause (iv) of clause (15) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby authorises the Rural Electrification Corporation 1[Limited] (hereinafter referred to as the entity), to issue, through a public issue, during the financial year 2011-12, tax free, secured, redeemable, non-convertible bonds of rupees 1,000 each, aggregating to rupees three thousand crores subject to the conditions specified namely:-
(a) Tenure of Bonds: The tenure of the bonds shall be ten years or fifteen years;
(b) Permanent Account Number (PAN): It shall be mandatory for the subscribers to furnish their PAN to the issuer;
(c) Rate of Interest: The interest on the bonds shall be not less than fifty basis points lower than the yield on the Government Securities of equivalent residual maturity as reported by the Fixed Income Money Market and Derivative Association of India, as on the last working day of the month immediately preceding the month of the issue of the bonds:
Provided that a higher coupon rate of up to 20 basis points may be offered to Retail Individual Investor vis-a-vis the rate offered to Qualified Institutional Buyers (QIBs), corporate and High Networth Individuals (HNIs):
Provided further that higher rate of interest shall not be available in case the bonds are transferred, except in case of transfer to legal heir in the event of death of the original investor:
(d) Commission on sale.- (i) the commission on sale shall be capped at a maximum of a flat fee of 1.25% of the issue size;
(ii) The flat fee shall include the total expense for the issue of bonds, including the expenses for advertisement, brokerage, printing, collection, canvassing charges, road shows and all other charges spent for this process.
(iii) Provided that the brokerage shall not exceed 0.15 per cent in the case of Qualified Institutional Buyers and corporate and 0.35 per cent in the case of High Networth Individuals.
(e) The benefit under the said section shall be admissible only if the holder of such bonds registers his, her or its name and the holding with the entity.
(f) The entity shall issue the bonds only by way of public issue, and not by way of private placement.
Explanation.—For the purposes of this notification,—
2[(i) Qualified Institutional Buyers shall have the same meaning as assigned to it in the SEBI (Issue and listing of Debt Securities) Regulations, 2008.
(ii) Any individual investor investing upto rupees five lakh shall be treated as retail investor and any individual investor investing more than rupee five lakh shall be treated as High Networth Individual.]
■■1. Inserted by the Notification No. 13/2012, dated 6-3-2012.
2. Inserted by the Notification No. 13/2012, dated 6-3-2012.
A reader meets this in the return, where interest on these bonds is shown as exempt under section 10(15), and in the issuer's offer document and register of holders.
Suppose the bonds are issued in March 2012 and the yield on Government Securities of equivalent residual maturity, as reported by the Fixed Income Money Market and Derivative Association of India on the last working day of February 2012, is 8.60 per cent. The coupon may not exceed 8.10 per cent, being fifty basis points lower. A retail individual investor putting in Rs. 4 lakh may be offered up to 8.30 per cent, but if he transfers the bonds otherwise than to his legal heir on death, the higher rate ceases to be available.
Source: the Income Tax Department’s own published text — its page for this instrument.