What you need to know about taxable savings bonds

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  • On January 4, 2018, the Centre announced that a new taxable savings bonds will be open for subscription from January 10, 2018. Here is everything you need to know about this investment option.

What are taxable savings bonds?

  • They are bonds introduced by the government to encourage citizens to invest. They will be taxable and return interest at 7.75%. Earlier, the Savings Bonds Scheme carried an interest rate of 8%.

Who can invest in these?

  • Any individual and HUF (Hindu Undivided Family) can invest in these bonds. However, NRIs are not eligible to do so.

What do I pay?

  • The face value of one bond is ₹100. The bonds will be issued for a minimum amount of ₹1,000 and multiples thereof. There is no upper limit. Each bond has a return of 7.75% annually and a maturity period of seven years. To receive interest payout, investors can choose two options — cumulative and non-cumulative. The non-cumulative option is for investors who want to receive payouts every six months, and the cumulative option for those who want their payout at the end of seven years. For instance, the cumulative value of bonds worth ₹1,000 will be ₹1,703 at the end of seven years.
  • For senior citizens between the ages of 60 and 70 years, the maturity period is six years. For those between 70 and 80 years of age, the period is reduced to five years while for for those above 80 years, it is four years.

How will it be taxed?

  • Interest earned from these bonds will be taxed under the Income Tax Act, 1961 according to the tax status of the investor. This will work similar to fixed deposit interest payouts from a bank. But these bonds are exempt under the Wealth Tax Act, 1957.

What are these bonds not eligible for?

  • These bonds are not transferable. The 7.75% savings bonds can also not be traded in the secondary market, nor can they be used as collateral for loans from either banks or non-banking financial institutions.