7 minsApril 19, 2018
The Government of India, vide a notification in January 2018, decided to issue “7.75% Savings (Taxable) Bonds, 2018” with effect from January 10, 2018.
These bonds are an investment avenue open to ‘resident individuals’ and ‘Hindu Undivided Families (HUFs)’. However, NRIs are not permitted to invest.
A Joint holding is permitted for resident individuals and investments can be done on behalf of minors (as father/mother/legal guardian).
The 7.75% Savings (Taxable) Bonds, 2018 are low-risk investments and the application for these bonds can be received in the designated branches of agency banks and SHCIL (StockHolding Corporation of India Limited).
The salient features of 7.75% Savings (Taxable) Bonds, 2018 are as follows:
Issue Price These bonds are issued at par, i.e. at Rs 100/- (for 1 bond) and minimum investment is Rs 1,000 and in multiples thereof.
Investment limit There is no maximum limit to invest in these bonds.
Subscriptions You can buy these bonds in cash/ demand drafts/ cheques or any electronic mode is acceptable. Cheques or drafts should be drawn in favour of the receiving office/bank and payable at the place where is tendered.
You can apply for these bonds in a physical form or electronic form, filling in all the necessary details.
How will the bonds be issued? These bonds will be issued in a demat form and will be credited to your, the investor’s, Bond Ledger Account (BLA) on the date of tender of cash or the date of realization of draft/ cheque.
Therefore, to buy 7.75% Savings (Taxable) Bonds, 2018, having a demat account is mandatory.
Are the bonds transferrable? No, the 7.75% Savings (Taxable) Bonds, 2018 held to the credit of BLA are not transferrable. They are not tradable in the secondary market.
Minimum maturity / repayment These bonds mature on the expiration of 7 years from the date of issue.
Premature encashment are possible only for individuals who are 60 years and above. This is subject to the submission of supporting documents that disclose/confirm the date of birth.
But note that there’s a minimum lock-in period even for premature encashment is defined as under:
- For investors in the age bracket of 60 to 70 years, it is 6 years from the date of issue.
- For investors in the age bracket of 70 to 80 years, it is 5 years from the date of issue.
- For investors who over 80 years, it is 4 years from the date of issue.
Now if there are joint holders, the above lock-in will be applicable even if any one of the holders fulfils the above conditions of eligibility.
After the aforesaid lock-in period from the date of issue, you, the investor, can surrender these bonds but the redemption payment will be done following the interest payment due date (August 1 and February 1 every year). However, in such a case 50% of interest due and payable for the last 6 months of the holding period will be recovered in such cases, both in respect of Cumulative and Non-cumulative bonds.
Interest rate These bonds, which are issued in both cumulative and non-cumulative form (at the option of the investor), will earn an interest at the rate of 7.75% p.a.
In case of the cumulative option, the maturity value of the bonds shall be Rs 1,703 (being principal + interest) for every Rs 1,000 invested. The interest for this option is compounded on a half-yearly basis.
In case of the non-cumulative option, the interest will be payable on half-yearly intervals from the date of issue ––– for the period ending July 31 / January 31 as the case may be on August 1 and February 1.
The interest on bonds held to the credit of BLA will be paid electronically by credit to bank account of the holder as per the option exercised.
Tax treatment As the name displays: ‘7.75% Savings (Taxable) Bonds, 2018’; the interest earned on these bonds is taxable under the Income Tax Act, 1961.
Tax will be deducted at source while making payment of interest on the Non-Cumulative Bonds. And in case of Cumulative Bonds, the tax on the interest portion will be deducted at source at the time of payment of the maturity proceeds.
However, if you have made a declaration in the respective forms (under the relevant provisions of the Income Tax Act, 1961), tax will not deducted at source while paying interest/maturity proceeds.
Nomination An individual investor (single holder and joint holders) can nominate in ‘Form B’ a person or persons, who in the event of death of the sole holder/all the joint holders, would be entitled to these bonds and to the payment due thereon, provided that the person or each of the persons nominated is himself/herself is competent to hold the bond.
Where the nomination has been made in favour of two or more nominees and either or any of them dies before such payment becomes due, the title of the bonds will vest with surviving nominee/s and the amount due thereon will be paid accordingly.
Note: These bonds issued in the name of the minor, nomination is not allowed.
But if the nominee is a minor, the holder of the bonds can appoint any person to receive the bonds or the amount due in the event of his/her/their death during the period the nominee is a minor.
It is possible to change nominee/s vide a fresh nomination in ‘Form B’, but a notice in writing to do so will have to be provided in ‘Form C’.
Can a loan be taken against 7.75% Savings (Taxable) Bonds, 2018? These bonds are not eligible as collaterals to avail loans from banks, Non-Banking Financial Companies (NBFCs) and financial Institutions.
If you are conservative or a risk-averse investor whose tax liability comes nil or in the lowest tax bracket and who does not want to take risk, 7.75% Savings (Taxable) Bonds, 2018 is a decent investment avenue, provided you do not mind locking in your money.
You may also consider other fixed return avenues such as bank fixed deposits.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinion on investing. Axis bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.