Floating rate savings bond

• The Union Finance Ministry has decided to launch Floating Rate Savings Bonds 2020 (Taxable) from July 1, giving an opportunity to invest in secured government instruments.

Key highlights:

• The new scheme has been brought in place of 7.75 per cent Savings (Taxable) Bonds, 2018, which was withdrawn from the close of banking business on May 28, 2020.

• The interest on the seven-year bond will be paid semi-annually on January 1 and July 1 every year.

• The interest on January 1, 2021 will be paid at 7.15 per cent. The rate for next half-year will be reset every six months, the first reset being on January 1, 2021.

• There will be no option to pay interest on cumulative basis, it said, adding the bonds will be repaid on the expiry of seven years from the date of issue.

• However, the ministry added, premature redemption will be allowed for specified categories of senior citizens.

• The interest on the Bonds will be taxable under the Income Tax Act, 1961 as amended from time to time and as applicable according to the relevant tax status of the Bonds holder, it added.

• It will be issued at par at Rs 100 for a minimum amount of Rs 1,000 and in multiples thereof, the release said, adding there will be no maximum limit for investment.

• Subscription to the bonds will be in the form of cash (up to Rs 20,000 only)/drafts/cheques or any electronic mode.

• The Reserve Bank of India, which will be issuing the bonds on behalf of the government, too has notified the scheme.

• As per the release, the Bonds could be held by a person resident in India and a Hindu Undivided Family (HUF).

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Mains Paper 3: Economy

Prelims level: Floating rate savings bond 2020

Mains level: Key highlights about the savings bond usage

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