With respect to the Inflation-indexed bonds (IIBs), consider the following statements:

These provide insurance to investors by eliminating uncertainty of risk premium due to inflation.

Interest payments and capital gains on these are tax-free.

Which of the statements given above is/are correct?

Question

The coupon rate is the rate of interest paid by bond issuers on the bond’s face value. Inflation-indexed bonds (IIBs) provide insurance to investors from inflation and cost savings for the Government on account of a reduction in coupon payments by lowering the inflation rate, eliminating of uncertainty risk premium, and containing inflationary expectations.
Extant tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.

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The coupon rate is the rate of interest paid by bond issuers on the bond’s face value. Inflation-indexed bonds (IIBs) provide insurance to investors from inflation and cost savings for the Government on account of a reduction in coupon payments by lowering the inflation rate, eliminating of uncertainty risk premium, and containing inflationary expectations.
Extant tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.

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