FLOATING RATE SAVING BOND LAUNCHED BY THE INDIAN GOVERNMENT
A “Floating Rate Savings Bond, 2020” has been recently launched by the Government of India.
This taxable bond comes with an interest rate of 7.15%. Subscription of the Floating Rate Savings Bond will be available from July 1, 2020.
According to the Reserve Bank of India (RBI) press release, the interest rates on these bonds will not be fixed. They will be reset after every six months, which implies that the first reset date of these bonds will be January 1, 2021.
Interest payable on these savings bonds will be paid every six months and not on a cumulative basis. Floating Rate Savings Bond has replaced RBIs earlier available 7.75% bond which offered a fixed interest rate for the bond duration. RBI’s earlier available 7.75% bonds were also having the option of receiving the interest on a cumulative or non-cumulative basis.
- Individuals/HUF (Hindu undivided families) can invest in these bonds; whereas NRIs cannot invest in these floating rate savings bonds.
- At present, there is no upper limit of investment. The current scheme allows the investment in the multiples of Rs.1,000 with the minimum amount of investment being Rs.1,000.
- The current tenure for these bonds or seven years from the date of issue.
- The facility of premature redemption is only available for senior citizens, a feature similar to the RBI 7.75% taxable bonds.
- The option of paying interest on a cumulative basis is missing. There will be a reset of interest-rate every six months. Thus, interest payable after the first six months i.e. on January 1, 2021, shall be 7.15%.
- Interest for these bonds will be payable on January 1 and July 1 for every year i.e. at every six months.
- Interest received from these bonds will be taxable. The tax amount will be decided depending on the income tax slab applicable. Moreover, TDS will be applicable on the interest.
- Application for these bonds will be received in the select branches of State bank of India, Nationalized banks, IDBI bank, Axis bank, HDFC bank and ICICI bank.
- Issuance of these bonds will be only in the electronic form and they will be stored at the credit of the bondholders in an account known as Bond Ledger Account.
- Mode of investment in these bonds can be in the form of Cash (up to Rs.20,000)/ demand draft/cheques or any electronic mode acceptable in the receiving office.
- These bonds are not eligible to be used as collateral for loans from banks or other financial institutions.
- The bonds are nontransferable except the transfer to a nominee or legal heirs in case of death of the bondholder.
Edited By Minu Mishra
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