Learn with ETMarkets: Difference between tax-free and tax-saving bonds

Tax-free bonds and tax savings bonds are investment options that offer tax benefits to investors in India. Tax-free bonds provide completely tax-free interest income, have a generally higher interest rate and no lock-in period, while tax savings bonds provide tax benefits on the principal amount, have a relatively lower interest rate, a 5-year lock-in period and the interest income is taxable. Moreover, Section 80CCF allowed taxpayers to claim deductions for long-term infrastructure bonds, but the option was terminated from FY2012-13. Finally, capital gains bonds offered by government-backed entities provide investors with the ability to invest capital gains from property sales and avoid paying taxes on such profits.