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What you need to know about taxable

savings bonds
Sruthi Radhakrishnan JANUARY 10, 2018 19:15 IST
UPDATED: JANUARY 10, 2018 19:15 IST

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MORE-IN On January 4, 2018, the Centre announced that a new

taxable savings bonds will be open for subscription from
The Hindu Explains
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.

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