Financial institutions (FIs) are going all out to mop up the maximum through their tax-saving bonds as the financial year draws to a close.
The mop-up in the next financial year is not expected to be as good as it was in the current financial year due to the changes made under Section 88 of Income Tax Act.
Both ICICI and Industrial Development Bank of India (IDBI) are in the market now.
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Around 75 per cent of the money collected by these institutions through the bond issues are from these tax saving bonds.
IDBI's Flexibonds 13 series has hit market on March 15 and will remain open till the April 10.
The issue has a notified amount of Rs 250 crore with another Rs 250 crore as greenshoe option. In its last Flexibonds issue (Flexibonds Series 12), IDBI had received Rs 320 crore of subscription in excess of the notified amount of Rs 250 crore.
ICICI has also hit the market with its safety bond issue worth Rs 600 crore with a greenshoe option of an equivalent amount on March 18. The issue will remain open till March 28.
ICICI has mobilised around Rs 4,000 crore through the bond issues with the February issue bringing in Rs 1040 crore.
According to ICICI joint general manager Amitabh Chaturvedi, "Around 90 per cent of the money garnered is from these tax saving bonds. The majority of the investors are salaried class with average salary of Rs 3 to 5 lakh. Around 20 per cent of the money comes in from people with salary of Rs 5 lakh and above."
Chaturvedi adds that the money from the class of Rs 5 lakh and above may not come in. Also, investments from the Rs 3 to Rs 5 lakh class may see a downfall.
IDBI has garnered around Rs 650 crore this years through its Flexibonds issue.
According to IDBI officials, around 50 per cent -- or Rs 350 crore -- of the money garnered by Flexibonds are through the tax savings instrument.
A bulk of the investments in the tax savings bonds are made in the month of March. There is a rush from professionals like doctors, chartered accountants, traders and also salaried class in the month of March to subscribe to these bonds and tax advantage of the tax shelter.
Officials say that investors are a mixture of middle class and upper middle class.
However, a chunk of money comes in through big-ticket investment by the upper middle class with income above Rs 5 lakh.
Following the changes in the Section 88 of Income Tax Act, from the next financial individuals in the higher income tax bracket (earning in excess of Rs 5 lakh) will no longer be given tax benefit on their investment in core sector bonds.
As a substantial portion of subscription to infrastructure bonds is made by individuals with annual income in excess of Rs 5 lakh the change is likely to hit hard the FI's fund raising programme.
The finance minister in his budgetary address has proposed to completely do away with the tax rebate for individuals earning in excess of Rs 5 lakh. The proposed changes will be applicable from April 1, 2003.
Section 88 at present allows individuals a tax rebate of 20 per cent in the case of investment made in infrastructure bond issued by financial institution -- Industrial Development Bank of India (IDBI) and ICICI.
The proposed changes however abolishes this benefit for those with a taxable income of Rs 5 lakh and more. It reduces the tax rebate to 10 per cent in the case of individuals with a taxable income of Rs 1.50 lakh to Rs 5 lakh.
Only individuals with a taxable income of less than Rs 1.5 lakh will continue to enjoy the 20 per cent rebate under Section 88.
Representations have gone to the finance ministry for a relaxation in the norms and officials are waiting till the budget gets cleared before finalising their plans for the next year.
ICICI's Chaturvedi says that the next year they will focus on increasing the customer base for the bond issues. There will also be more focus on the mid-size -- people with in the income bracket of Rs 1.5 and Rs 5 lakh.