Official Answer Key & Detailed Solution
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Correct Answer: Option (A) — 1 and 2 only
Concept & Option Breakdown
Standard Reference VerifiedStatement 1 is correct: Since investors receive protection against inflation on the principal/coupon base, the government can offer IIBs at lower real coupon rates compared to fixed-rate nominal bonds carrying inflation risk premiums.
Statement 2 is correct: IIBs adjust the principal and/or interest payments based on an inflation index (such as WPI/CPI), ensuring guaranteed positive real returns.
Statement 3 is incorrect: IIBs are subject to normal tax rules applicable to debt instruments; there is no general tax exemption on interest income or capital gains from IIBs.
Total tax-exemption claims (like statement 3) on broad sovereign market debt instruments are usually incorrect unless explicitly established as special tax-free infrastructure/savings bonds.
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