Floating rate savings bond 2020 (Taxable)

Floating rate savings bond 2020 (Taxable)

Recently, the Reserve Bank of India announced the launch of new bonds, namely, ‘Floating rate savings bond 2020 (Taxable)’. The new bonds shall be available for subscription from 1st July 2020. Under the present article, we will look into the salient features of the newly introduced bond.

Understanding the salient features of ‘Floating rate savings bond 2020 (Taxable)

The features of the ‘Floating rate savings bond 2020 (Taxable)’ are tabulated hereunder-

Particulars Description/ details
Eligibility for investment in the bonds

·        An individual (resident in India) including joint holding; and

·        A Hindu Undivided Family.

Mode of payment

The payment to the bonds can be in any of the following forms-

·        Cash (maximum payment up to INR 20,000), or

·        Drafts, or

·        Cheque, or

·        Any other electronic mode accepted by the Receiving Offices.

Issuance of bonds The bonds will be issued in the electronic form only. The bonds will be held at the credit of the holder in an account named ‘Bond Ledger Account’. Such a bond account will be opened with the Receiving Office.
Repayment of bonds The bonds shall be repayable on the completion of seven years from the date of issue.
Minimum and maximum amount of investment in the bonds

The minimum amount of Investment – INR 1,000

The maximum amount of Investment – No limit

Transferability of bonds The bonds are not transferable except transfer to a nominee or legal heir in case of death of the holder of the bonds.
Tradability / advances against bonds The bonds shall not be tradable in the secondary market. Further, the bonds shall not be eligible as collateral for loans from banks, financial institutions, and non-banking financial company.

Interest feature of ‘Floating rate savings bond 2020 (Taxable)

Rate of interest – The interest/ coupon of the bond will be reset on a half yearly basis. The same will be starting from 1st January 2021 and after that every 1st July and 1st January. The first coupon rate, payable on 1st January 2021, is fixed at 7.15%.

The coupon rate will be linked with the prevailing National Saving Certificate rate with a spread of + 35 basis points over the respective National Saving Certificate rate. In nut-shell, the rate of interest of the bond shall be 0.35% higher than the National Saving Certificate rate.

Payment of Interest – The interest on the bonds is payable semi-annually (half yearly interval) on 1st January and 1st July every year. It is important to note that the interest is payable only on a non-cumulative basis. There is no option to pay interest on the bonds on a cumulative basis.

The interest shall be paid electronically by a credit to the bank account of the holder.

List of Receiving Offices

The application for the Floating rate savings bond 2020 (Taxable) will be received in the designated branches of-

  • State Bank of India.
  • Bank of India.
  • Bank of Maharashtra.
  • Bank of Baroda (including Vijaya and Dena Bank).
  • Central Bank of India.
  • Canara Bank (including Syndicate Bank).
  • Indian Bank (including Allahabad Bank).
  • Punjab National Bank (including United Bank of India and Oriental Bank of Commerce).
  • UCO Bank.
  • Union Bank of India.
  • HDFC Bank Ltd.
  • IDBI Bank Ltd.
  • ICIC Bank Ltd.
  • Axis Bank Ltd.

Tax Treatment of Bonds

There is no tax benefit available for investment in the bonds. Interest received on the bonds will be taxable as per applicable tax slab under Income Tax. Further, the tax will also be deducted at the source at the time of payment of interest on the bonds.

Premature encashment facility

The premature encashment facility is available only for the account holder in the age group of 60 years and above. Premature encashment is available only after completion of the following minimum lock in period-

Particulars of investors Lock in period
Investor in the age bracket of 60 to 70 years 6 years
Investor in the age bracket of 70 to 80 years 5 years
Investor in the age of 80 years or above 4 years

 

Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.