Balwant Jain
After discontinuing its 7.75%
fixed interest rate bonds on 28th
May 2020, the RBI has come out with new “floating rate savings bonds” on 26th June 2020 which
will be available from 1st July 2020. Let us understand the main
features of these new bonds.
Who can buy these bonds and nomination
facility
The bonds are available only to
individuals and Hindu Undivided Family. So other entities like trusts,
Companies, Partnership firms etc. can not subscribe to these bonds. It is not
that all the individuals can apply for these bonds. The individuals who are
residents of India for the purpose of Foreign Exchange Management Act (FEMA)
can only subscribe to these bonds. So NRI and persons of Indian Origin can not
apply for these bonds. Even Indian citizens who are working outside India or
have set up business outside India can not apply for these bonds. The
individual holders of the bonds who subsequently become non resident are
allowed to continue to hold the bonds even after becoming a non resident under
FEMA.
You can also apply for these
bonds even in the name of a minor as guardian of the child. The bonds can be
held either individually or jointly with other persons. In
case of jointly held bonds, these can be held jointly as well as on
either or survivor basis.
Individual applicant/s can nominate
any person to receive the money under these bonds in case of death of the
single or joint holders. You can nominate one or more person for your
investments in the bonds. The nomination once made can be cancelled or modified
later on. You can make separate nomination for different investments made in
the bonds. However nomination is not
allowed to be made in case the application is being made in the name of a
minor.
Face Value, tenure and interest rate of the bonds
The new saving bonds will have a
face value of Rs. 1000/- and will be available in multiple for this amount. The
bonds will have a tenure of seven years after which the same will be redeemed.
Interest on these bonds shall be
paid twice during a year. The first such payment will become due on 1st
January 2021. Unlike the earlier bonds which offered the bond holders a
cumulative option to receive the interest at the time of maturity, no
cumulative option is available under the new bonds now being floated by RBI.
Moreover, Unlike the discontinued
bonds which offered interest at the “Fixed
Rate” of 7.75% annually, interest on the new bonds will be floating and
will be reset every half year. The rate of interest payable on these bonds is
linked with interest rate applicable for National Saving Certificates (NSC)
from time to time. The floating rate bonds will have interest rate higher by 35
basis points higher as compared to the one payable on NSC. Since the presently
the rate of interest on NSC is 6.80% the interest for the first half year with
a premium of 0.35% has been fixed at 7.15% for the new bonds.
Taxability and TDS on interest
The interest on the RBI floating
savings bonds will be fully taxable in your hands and you are not entitled to
any tax benefits in respect of interest received on such bonds. However if you
have borrowed any money to make investments in the bonds, the interest if any
paid for the money so borrowed will be a deductible expenditure.
Tax will be deducted on interest
paid on such bonds. However in case you have obtained any certificate from the
tax department for nil deduction or deduction at lower rate will be required to
submit copies of such certificate for receiving interest without deduction of
tax at source or for receiving interest with lower TDS. Though the notification
does not provide for submission of Form No. 15G and 15H, in my opinion you will
be entitled to submit these forms provided you satisfy the conditions as
prescribed for being eligible to submit these forms.
How to subscribe to these
bonds
In addition SBI and 11 other
Public Sector banks, the RBI has also allowed ICIC, HDFC, Axis and IDBI to
accept the application for these bonds. The
application for these bonds can either be made online or offline. For accepting
applications for these bonds each banks will designate some of its branches. The
application can be made throughout the year and there is not closing date for
applying for these bonds. One can tender upto Rs. 20,000/- in cash for applying
for these bonds. If you wish to apply for higher amount you will have to
provide cheque/draft or make payment through electronic mode for the bonds. The
bonds will be allotted when the money is realised by the bank.
Since the interest and maturity
proceeds will be directly credited to your account, it is mandatory for you to
provide your bank account details with the application form.
Transfer and premature
redemption of the bonds
The bonds are non transferrable
and thus are not tradable in the secondary market. Transfers are allowed only
to nominees on the death of holder/joint holders. Since no transfer is allowed
in respect of these bonds, you will not be able to obtain any credit facility
or loan against security of these bonds.
Normally no prepayment of the
bonds is allowed before its maturity before its maturity but an exception is
made in case of Individual holders who have completed 60 years of age at the
time of making such requires. Individual between the age of 60 and 70 are
allowed to go for premature redemption of these bonds in the seventh year of
its tenure. The Individual bonds holder who is between 70 and 80 can go for
early redemption anytime after five years and for those are above 80 years of
age can go for redemption after the bonds have run for 4 years. The redemption
payment will only be only made on the next due date for payment of interest i.e.
1st January or 1st July after application for such
redemption is received. While paying such maturity proceeds 50% of the interest
due for the last half year shall be deducted as penalty for premature
redemption. In case the bonds are held in joint names, you will be entitled to
go for such premature redemption if one of the jointholder has completed the
requisite age on the date of such application.
However no premature redemption
facility is available in respect of investments held in the name of an HUF.
What about loans against this bonds?
ReplyDeleteSir, what is your opinion. Can individual should go for the same.
ReplyDelete