Recently, the Government of India decided to launch Floating Rate Savings Bonds 2020 (Taxable) scheme, with effect from July 01, 2020 and the interest rate shall be at of 7.15 percent. However, the RBI through the press release has confirmed that the rate of interest of the bonds will be reset every six months. As per which, the first reset shall be done on January 01, 2021. The Government of India and the RBI has made it clear that interest on the bonds is payable half-yearly on 1st January and 1st July every year. That is to say that as on 1st January 2021 the interest shall be payable at the rate of 7.15% and subsequently, the interest rate for the next half-year (which is due on July 1, 2021) will reset by the RBI.
The Central Government has decided to issue these Floating Rate Savings Bonds, 2020 (Taxable) through any number of branches of State Bank of India, Nationalized Banks, four Private Sector Banks and any other entity authorized by Reserve Bank of India. However, the issuance of these bonds shall be in accordance with the GoI Notification F.No.4(10)-B(W&M)/2020 dated June 26, 2020 which clearly specifies all the terms and conditions of the issuance of the bonds.
Notably, the investments can be made by individuals (including Joint Holdings) and Hindu Undivided Families (HUFs). But the Non-Resident Indians (“NRIs”) cannot invest in these bonds.
Interestingly, there is no maximum limit for the investment in this bond. However, the minimum investment starts from INR 1,000 and in the multiples of INR 1,000 thereof.
The bonds shall be repayable on the expiration of seven years from the date of issue. Premature redemption shall be allowed for specified categories of senior citizens.
When it comes to the point of taxation, these bonds are taxed as per the income tax slab applicable to the income. Further, TDS (“Tax Deduction at Source”) will be also applicable to the interest income.
Investment in these bonds will be in the form of cash (up to Rs 20,000)/drafts/cheques or any electronic mode acceptable to the Receiving Office. Applications for the bonds in the form of Bond Ledger Account will be received in the designated branches of SBI, nationalized banks, IDBI Bank, Axis Bank, HDFC Bank and ICICI Bank. The bonds will be issued only in electronic form and held at the credit of the holder in an account called Bond Ledger Account (“BLA”).
On the other hand, the bonds are not eligible for trading in the secondary market and cannot be used as collateral for loans from banks, financial institutions, NBFCs, etc. Also, if the bond is held by a sole holder or a sole surviving holder, then he/she can make the nomination.
However, in case of the death of the holder of the bond, the bonds shall not be transferable except to the nominee(s) (or) to the legal heir .
Introduction The Reserve Bank of India (“RBI”) in its First Bi-monthly Policy Review dated April 5 2018, made an announcement to introduce a Single Master