One can invest in tax free bonds through the Primary as well as the Secondary markets. The investor can claim absolute tax exemption as per section 10 of the Income Tax Act of India, 1961. The returns are low but offer a fixed rate of interest. The government raises money by issuing these bonds for a long duration of 10-15 years as they are primarily invested in infrastructure projects like Power, Roads etc. The bonds can be traded on the stock exchanges also.