Interest on the Floating Rate Savings Bonds 2020 (Taxable) will be taxable under the Income-tax Act.
Floating Rate Bonds 2020: The government is launching the Floating Rate Savings Bonds 2020 (Taxable) scheme from July 01, 2020. The Floating Rate Savings Bonds 2020 (FRSB Bonds) will have a tenure of 7 years and the interest rate will keep varying during the tenure of the scheme. Currently, the rate of interest has been set at 7.15 per cent per annum payable half-yearly. The minimum investment amount is Rs 1000, while there will be no maximum limit for investments made in the Bonds. The maximum investment in cash can be made up to Rs 20,000.
In addition to debt funds, bank fixed deposits, post office NSC and other fixed-income investments, the investors will now have another option in the form of Floating Rate bonds to choose from.
The resident Indians or HUF can invest in the FRSB taxable bond, without any monetary ceiling. The Bonds will be on tap till further notice and issued in non-cumulative form only. Premature redemption shall be allowed for specified categories of senior citizens.
Interest on the Bonds will be taxable under the Income-tax Act, 1961 as amended from time to time and as applicable according to the relevant tax status of the Bond holder. There will be an incidence of TDS unless certificate of exemption is provided to not deduct TDS.
Some other salient features of the Floating Rate Savings Bonds 2020 (Taxable) are:
1. Eligibility for investment: The Bonds are open to investment by individuals (including Joint Holdings) and Hindu Undivided Families. NRIs are not eligible for making investments in these Bonds.
In the case of an individual, the Bonds may be held by a person resident in India in her or his individual capacity, or in individual capacity on joint basis, or in individual capacity on any one or survivor basis, or on behalf of a minor as father/mother/legal guardian.
2. Form of the Bonds : The Bonds will be issued only in the electronic form and held at the credit of the holder in an account called Bond Ledger Account (BLA), opened with the Receiving Office.
3. Where to invest: One can invest through branches of State Bank of India, Nationalised Banks and four specified private sector banks.
4. Interest (Floating):
(i) Interest payments– The interest on the bonds will be payable at half-yearly intervals on Jan 1st and July 1st every year. There is no option to pay interest on cumulative basis.
(ii) Interest Rate – The coupon/interest of the bond would be reset half yearly starting with Jan 1st, 2021 and thereafter every July 1st and Jan 1st. The coupon rate for first coupon period, payable on January 1, 2021 is fixed at 7.15%.
(iii) Base Rate – The coupon rate will be linked/pegged with prevailing National Saving Certificate (NSC) rate with a spread of 35 basis points over the respective NSC rate.
What can investors do
After the closure of RBI Bonds, investors will now get a new option to invest with very high safety. Also, at a time when the bank FD rates are falling, the FRSB 2020 may give investors more benefits. The rate of interest, however, will not be fixed for the entire tenure and hence one needs to keep this into account while planning for regular income needs. Further, one should invest keeping one’s tax slab and the tenure of the bonds into context as liquidity is less in these bonds, being non-transferable and not available for trading.