HDFC BANK - 7.15% RBI Floating Rate Savings Bonds 2020 ( Taxable)

Floating rate savings bond (taxable) is issued by the government of India. It is a floating rate instrument which means the interest rate or the coupon rate is not fixed and will fluctuate from time to time. There is a benchmark rate according to which the interest rate will change as per RBI’s supervision. The interest rate of these bonds is subjected to change every six months as per the benchmark rate. If the benchmark rate remains the same, then the interest rate may remain the same. However, every six months, the RBI has to announce the interest rate for the next six months. For instance, the RBI announced the coupon rate for July 2021 to December 2021 recently. The benchmark rate is the interest rate of the National savings certificate. The coupon rate will be linked/pegged with prevailing National Saving Certificate (NSC) rate with a spread of (+) 35 bps over the respective NSC rate. The rate of interest of NSC at present is 6.8%. Thus, the rate of interest on Floating rate savings bonds is 6.8%+.35% = 7.15%. It hasn’t changed as the interest rate for NSC hasn’t changed for July and September quarters. This is a 100% risk-free debt instrument as it is a government bond thus, your capital in floating rate bonds is fully protected, you do not have to worry about default on the payment of interest or the principal on maturity. The interest on floating rate savings bonds is higher than normal recurring deposits and term deposits.

Features of Floating Rate Savings Bonds

  • Eligibility: (i) Resident Individual, and (ii) HUF
  • Entry age: There is no minimum entry age. In the case of minors, the floating rate bonds can be purchased by parents/legal guardians.
  • Investments: The minimum investment can be Rs. 1000 in this instrument without any maximum limit.
  • Interest: 7.15% (interest paid at half-yearly intervals on Jan 01 and July 01 every year. There is no option to pay interest on a cumulative basis. The interest rate will be reset every six months. It pays interest on a half-yearly basis.
  • Tenure: The maturity of these bonds is seven years. However, there is a special provision for senior citizens where they can redeem the bond before the maturity date with penalty charges @ 50% of last coupon payment. Senior citizens after a minimum lock-in period, which varies from four to six years depending on the age bracket in which the senior citizen falls. For an individual in the age bracket of 60-70 years, the lock-in period is six years. If the investor is in the age bracket of 70-80, it is five years and four years if his age is 80 or more.
  • Exit option: There is no exit option from these bonds before maturity, except for senior citizens. These bonds are not listed and traded and you cannot take loans against them. You are effectively locked in for a tenure of seven years.
  • Account-holding categories: (i) Individual, (ii) Joint, (iii) any one or survivor basis, (iv) Minor through a guardian, Nomination Facility is available. The sole Holder or all the joint holders may nominate one or more persons as nominee
  • Date of Issue of bonds: Date of receipt of subscription in cash (up to `20,000/- only), or date of realization of cheque /draft/ funds.
  • Bank account: It is mandatory for the investor/s to provide bank account details to facilitate payment of interest /maturity value directly to his/her/their bank account.
  • TAX: These are taxable bonds. The interest you earn on these bonds is taxable. The interest amount will be added to your taxable income and will be taxed as per the tax slab you fall into. Tax will be deducted at source while interest is paid. If an exemption under the relevant provisions of the Income Tax Act,1961 is obtained, it may be declared in the Application Form. The Bonds will be exempt from Wealth-tax under the Wealth- tax Act, 1957.
  • Subscription - Subscription to the bonds will be in the form of cash (upto ₹20,000/- only)/drafts/cheques or any electronic mode acceptable to the Receiving Office.
  • 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. Bond Ledger Account will be opened by the Receiving Office in the name of investor/s.
  • Transferability - The Bonds held to the credit of Bond Ledger Account (BLA) of an investor shall not be transferable, except transfer to a nominee(s)/legal heir in case of death of the holder of the bonds but cannot be traded.
  • Advances: The bonds are not eligible as collateral for availing loans from Banks, Financial Institutions & Non-Banking Companies.

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Why choose this product?

Minimum investment of Rs.1,000

No maximum limit on investment

Floating rate of interest with a Half Yearly interest payout

100% risk free investment option

7 years tenure of the bond from the date of issue with a special provision for premature redemption for Senior Citizens.

Who can invest in it?

An Individual, not being a Non-Resident Indian

A Hindu Undivided Family

Eligibility ?You can apply for the Floating Rate Savings Bonds 2020 (Taxable) if you are:

A person residing in India

In his or her individual capacity, or

In individual capacity on joint basis, or

In individual capacity on anyone or survivor basis, or

On behalf of a minor as father/mother/legal guardian

A Hindu Undivided Family

FAQ


Are the Floating Rate Savings Bonds (Taxable) transferable?

No, these bonds are not transferable.

What are the minimum and maximum limit for investment in the Floating Rate Savings Bonds (Taxable)?

The Bonds will be issued for a minimum amount of Rs. 1000/- (face value) and in multiples thereof. There will be no maximum limit for investment in Bonds.

What is the tenure of the Floating Rate Savings Bonds (Taxable)?

The tenure of the bond is 7 years from the date of issue. No interest will accrue after the maturity of the bond. 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. This is similar to the earlier withdrawn 7.75% RBI Taxable Bonds.

Is a nomination facility available?

Yes, a nomination facility is available.

How much tax do I have to pay?

The interest income from the bonds is taxable. TDS (This stands for Tax Deducted at Source, which means the tax you have to pay on your salary is already deducted and the net amount is received by you.) is deducted at the time of interest payment as per the prevailing IT rules.

What are the minimum and maximum limit for investment in the Floating Rate Savings Bonds (Taxable)?

The Bonds will be issued for a minimum amount of Rs. 1000/- (face value) and in multiples thereof.

What is the tenure of the Floating Rate Savings Bonds (Taxable)?

The tenure of the bond is 7 years from the date of issue. No interest will accrue after the maturity of the bond. Premature redemption facility is allowed for investors in the age group of 60 years and above as per RBI’s Notification.

When is the interest payable?

Interest is payable semi-annually from the date of issue of bonds, up to 30th June / 31st December as the case may be, and thereafter half-yearly for the period ending 30th June and 31st December on 1st July and 1st January respectively.

How much interest will the Floating Rate Savings Bonds (Taxable) bear?

The interest rate of the bond would be re-set half-yearly starting with Jan 1st, 2021, and thereafter every July 1st and will be liked with the prevailing National Saving Certificate (NSC) rate with a spread of (+) 35 bps over the respective NSC rate. Accordingly, the coupon rate for the first coupon period i.e. July 1 to Dec. 31, 2020, payable on Jan. 01, 2021 arrives at 7.15% (6.80%+0.35%). All subsequent coupon reset would be based on the fixation of rate of interest on NSC on Jan 01 and July 011 following the above methodology.

How much is the interest and how will be payable?

The interest on the bonds is payable half-yearly on 1st January and 1st July every year. On 1st January 2021, interest shall be payable at 7.15%. The interest rate for the next half-year (which is due on July 1, 2021) will reset every six months, the first reset being on January 1, 2021. There is no option to pay interest on a cumulative basis. This would mean that once the interest on bonds is due, it will be credited to the inve.

Capital Gain Tax Exemption Bonds u/s 54 EC

(Avail Tax benefit U/s 54EC of Income-tax Act)

The gains that arise on the sale of land or building (residential or commercial) are known as Long Term Capital Gains and Capital Gains Tax is levied on such gains. However, such tax can be saved if this amount is invested in capital gain bonds specified under section 54 EC. REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and IRFC (Indian Railways Finance Corporation Limited), NHAI( National Highways Authority of India) are the bonds eligible under Section 54 EC. These bonds are issued by infrastructure companies that are backed by the government and carry the highest ratings from rating agencies, and are therefore considered as safest investments. Such bonds cannot be redeemed before five years from date of transfer. One cannot sell these bonds as they are not listed in the stock exchange. To avail the tax-exemption the investment must be made within 6 months of the date of sale of immovable property. Such investment can be redeemed only after 5 years. Before april 2018 the bonds could be redeemed within 3 years. You can hold 54EC bonds in Demat format or physical format.

Pls find below details – FY 2022-2023

Features IRFC(Indian Railway Finance Corporation Ltd.) Series VI PFC (Power Finance Corporation Ltd) Series VI REC (Rural Electrification Corporation Ltd) Series XVI
Rating ‘AAA/Stable’ by CRISIL, ‘AAA (Stable)’ by ICRA, & ‘AAA/Stable’ by CARE ‘AAA/Stable’ by CRISIL, ‘AAA (Stable)’ by ICRA, & ‘AAA/Stable’ by CARE ‘ICRA AAA’ by ICRA Limited. ‘CARE AAA’ by Care Ratings Limited. ‘CRISIL AAA’ by CRISIL Limited. ‘IND AAA’ by India Ratings and Research Private Limited.
Coupon / Interest Rate/Yield 5.00% p.a 5.00% p.a 5.00% p.a
Tax Status Taxable Taxable Taxable
Tax Benefit SEC 54 EC SEC 54 EC SEC 54 EC
Minimum (Rs.) 20,000 20,000 20,000
Maximum (Rs.) 50 Lacs 50 Lacs 50 Lacs
Tenure 5 Years 5 Years 5 Years
Mode of Interest Annual Annual Annual

Provisions of section 54EC

As per provisions of Income Tax Act, 1961, any long term capital gains arising from the transfer of any capital asset would be exempt from tax under section 54EC of the Act if:

  • To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond within 5 years from the date of acquisition else, the benefit would be withdrawn

  • If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax

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PFC (Power Finance Corp)

REC ( Rural Electrification Corporation Ltd)

NHAI ( National Highway Authority Of India) – Reopens with effect from 1st June 2022.

IRFC (Indian Railway Finance Corporation Ltd)

FEATURES – FY 2022-2023

Features IRFC(Indian Railway Finance Corporation Ltd.) Series VI PFC (Power Finance Corporation Ltd) Series VI REC (Rural Electrification Corporation Ltd) Series XVI
Rating ‘AAA/Stable’ by CRISIL, ‘AAA (Stable)’ by ICRA, & ‘AAA/Stable’ by CARE ‘AAA/Stable’ by CRISIL, ‘AAA (Stable)’ by ICRA, & ‘AAA/Stable’ by CARE ‘ICRA AAA’ by ICRA Limited. ‘CARE AAA’ by Care Ratings Limited. ‘CRISIL AAA’ by CRISIL Limited. ‘IND AAA’ by India Ratings and Research Private Limited.
Coupon / Interest Rate/Yield 5.00% p.a 5.00% p.a 5.00% p.a
Tax Status Taxable Taxable Taxable
Tax Benefit SEC 54 EC SEC 54 EC SEC 54 EC
Minimum (Rs.) 20,000 20,000 20,000
Maximum (Rs.) 50 Lacs 50 Lacs 50 Lacs
Tenure 5 Years 5 Years 5 Years
Mode of Interest Annual Annual Annual