GOI Floating Rate Savings Bonds, 2020 (Taxable)
RBI’s Floating Rate Savings Bonds 2020 are bonds issued by the Government of India, with an interest rate of 7.15 percent. The bonds are issued only in electronic form and held in the Bond Ledger Account (BLA). The BLA is an account with RBI or an agency bank in which the bonds are held. Subscription to these bonds opened on July 1, 2020, the interest rate for the first coupon payment of the bond, due on January 1, 2021, was fixed at 7.15%. It was arrived at by adding a premium of 0.35% to the prevailing NSC rate, which was 6.80% as on July 1, 2020 and kept unchanged since then
Features of RBI floating rate bonds
RBI launched the floating rate bonds in lieu of the earlier 7.75% taxable bonds which were withdrawn. As per the scheme notification, the features of the recently launched bonds are as follows:
a) Resident individuals and Hindu Undivided Families (HUFs) can invest in these bonds.
b) The minimum investment in these bonds is Rs1,000 with no limit on the maximum amount.
c) The bonds have a fixed tenure of seven years. Premature withdrawals are allowed for individual investors whose age is 60 years and above, subject to minimum lock-in period depending on the age of the bond holder.
d) These bonds do not offer any cumulative (interest payment at the end of the maturity period of the bonds) interest option. The interest amount is paid out half-yearly on January 1 and July 1 every year.
e) The interest rate on these bonds is reset every six months, i.e. on January 1 and July 1 every year.
f) The Bonds are not tradeable in the Secondary market and are not eligible as collateral for loans from banking institutions, non-banking financial companies or financial institutions.
How interest rate is fixed for RBI floating rate bonds
As subscription to these bonds opened on July 1, 2020, the interest rate for the first coupon payment of the bond, due on January 1, 2021, was fixed at 7.15%. It was arrived at by adding a premium of 0.35% to the prevailing NSC rate, which was 6.80% as on July 1, 2020 and kept unchanged since then.
The interest rate on NSC is reviewed by the government every quarter. The government arrives at the NSC interest rate using a formula suggested by the Shyamala Gopinath Committee. As per the formula suggested by the Committee, the interest rate on small savings schemes should be 0.25-1% higher than the yields of government bonds of similar maturity.
Taxation
The interest you receive from the bonds will be taxed as per your income tax slab. Further, TDS is also applicable to the interest income you earn.
For example, if you invested Rs 1 lakh in the bonds, you will earn Rs 3575 once on 1st January and then the same amount on 1st July. The total amount of Rs 7150 gets added to your taxable income (if both payments are received in the same financial year), and you will be taxed as per your income tax bracket.
The Bonds will be exempt from Wealth-tax under the Wealth- tax Act, 1957.
Premature withdrawal
Premature is only allowed if your age is above 60 years, subject to a minimum lock-in period depending on your age.
Should you buy these bonds?
The first thing you need to understand in such investment options is the lock-in. You should only invest that money in buying these bonds that you don’t need for the next seven years. It is an excellent option for senior citizens who are not happy with the low fixed deposit interest rate