To begin with, a bond is a document that guarantees the holder
certain rewards and benefits in exchange for financial investment. It is
made up of an Issuer, which is the company that issues the bonds, and an Owner, who
is the person who owns the bonds. With that, we shall look at tax-saving bonds in
What Do Tax Saving Bonds Mean?
Saving Bonds are, as the name implies, are bonds that help people save
money on taxes. These bonds provide owners with particular special tax
incentives, allowing them to save a portion of their taxes. Individuals
can buy these bonds and earn a set amount of interest, according to a specific
provision in the Income Tax Act that provides tax advantages for investments.
Tax Saving Bonds have a five-year minimum lock-in duration, making them
medium- to long-term investment vehicles.
Tax savings bonds provide reasonable yields without the risk associated
with other securities, making them excellent for people who want to save money
without jeopardizing it.
To add to that, the bond can be purchased by any resident individual or a HUF.
These bonds, however, cannot be passed along from one person to the next. The
savings bond is also not available for secondary market trading. Because
of its transferability, it cannot be used as loan collateral as well.
What are the differences between Tax Saving Bonds & Tax-Free Bonds?
Aside from Tax Saving Bonds, another popular option is Tax-Free Bonds,
essentially tax-free bonds. It's easy for the novice to mix these two, but
there are a few key features that distinguish them.
Key Benefits of Tax saving bonds
1) An investor can choose between a cumulative and a non-cumulative
2) They are low-risk investment tools that are suitable for folks
who are just getting started with investing.
3) The maximum benefit of tax-saving bonds that can be
deducted is Rs. 20,000.
4) One can invest as low as Rs.1000/- and in multiple thereof.
RBI Saving Bonds for Senior Citizens
RBI Floating Rate Bonds has been notified on 1st July 2020. The
Indian government has allowed the issuance of Floating Rate Savings Bonds for
individuals and HUF with no upper limit on Investments. The interest rate has
been linked with prevailing NSC rates (i.e., 0.35% above prevailing NSC Rates)
As NSC Rate is 6.80% then the RBI FRB Interest will be 7.15%
(0.80%+ 0.35%), The interest on these bonds will be paid half yearly on 1st
Jan and 1st July every year.
These bonds are issued in BLA (Bond Ledger Account) and
non-transferable and No loan will be available from any bank.
How to buy Tax Saving Bonds online in India?
The central government and state governments both issue government
bonds to support various government projects. Bonds can be purchased
in two ways: on the primary market or on the secondary
RBI bonds can
be purchased through private or public banks, either online or offline.
As a result, purchases can only be made at banks or businesses that have been
authorized by the government of India.