Tax Saving Bonds

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Introduction:

Looking for a safe investment option with good returns? Government of India Savings Bonds may be the answer to your needs. Often known as 7.75 percent Savings (Taxable) Bonds, 2018, these bonds are issued by the Reserve Bank of India (RBI). They have a fixed tenure of seven years.
Launched in 2003, the original scheme offered a return of 8 percent, but in 2018, the government of India reduced it to 7.75 percent. They are government-backed and considered safe.
Issued by the RBI, these bonds are available at most public and private sector banks.

Types of government savings bonds

There are two types of GoI bonds.

  1. Non-cumulative or half-yearly: Interest you earn on a non-cumulative GoI bond will be credited to you half-yearly. Depending on when you purchase the bond, you will be paid interest from the date of issue up to July 31 or January 31. After that, the interest is calculated half-yearly. So for the period ending July 31, interest is credited on August 1. For period ending January 31, interest is credited on February 1.
  2. Cumulative: In this case, the interest is calculated half-yearly but paid upon maturity. So the interest rate of 7.75 percent per annum is compounded with half-yearly interests. You will receive your entire interest earned on maturity along with the principal.

Features of government savings bonds

Here’s why you should opt for a GoI bond for your short-term investment:

  1. Interest rate: The rate of interest for GoI bonds is fixed at 7.75 percent by the central government. The government may, at any time, change the rate and the investor will be notified of any such change.
  2. Eligibility: Only Indian nationals and Hindu Unified Family can invest in government savings bonds. You can purchase a GoI bond for yourself or hold a bond jointly with a family member. You can also buy a bond on behalf of your child or ward. You can nominate a person to receive the funds in case of your death. These bonds are, however, non-transferrable.
  3. Limit: Bonds are issued for a minimum of Rs1,000. There is no upper limit on the value of a GoI bond that you can purchase.
  4. Tax: The interest and repayment amount are taxable under the IT Act. According to RBI rules, tax will be deducted at source while making payment of interest on the non-cumulative bonds from time to time and credited to government accounts. Upon maturity, the tax on the interest earned will also be deducted at source at the time of payment of the maturity proceeds on the cumulative bonds.

Conclusion (CTA):

A government of India savings bond is a safe investment tool. So if you are looking for fixed returns with minimum risk, this is the option for you. This bond is ideal for senior citizens as the scheme is at par with other senior citizen investment plans. That, however, should not stop young investors from considering this, low-risk option.

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