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Tax free bonds

14 March 2016

If I buy tax free bonds this year and sell the same in the next financial year, will interest earned be treated as tax free or not? Generally tax benefit is given for investment made for a minimum period of 5 years. Kindly clarify

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karishma@questprofin.co.in (Associate) (26 Points)
Replied 14 March 2016

The Interest earned on tax-free bonds is exempt as per Section 10 (15) (iv) (h) of Income tax Act. There are no minimum holding requirements as per the said section of the Income tax Act. Hence, we can conclude that there are no conditions levied by the Income tax Act except mentioning PAN at the time of application.

However, it is suggested that you refer the Prospectus carefully. Also consider capital gains tax at the time of selling the bonds in the Secondary market.