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Seven year floating rate savings bonds announced by the Government

Seven year floating rate savings bonds announced by the Government

The central government has announced the launch of a seven-year Floating Rate Savings Bonds, 2020 (Taxable) scheme which will come in effect from 1 July 2020. The interest on the Floating Rate Savings Bonds is payable semi-annually on 1 January and 1 July each year.

Key Points:

  • The coupon on 1 January 2021, will be paid at an interest rate of 7.15 percent.
  • As per the notification by the Reserve Bank of India (RBI), the Floating Rate Savings Bonds (FRSBs) will facilitate the investment in a taxable bond by individuals residing in India or the Hindu Undivided Family (HUF) without any monetary limit.
  • The decision had come after a month when the government pulled the plug on the 7.75 percent Savings (Taxable) Bonds, 2018, which was made in effect from 28 May 2020 on the close of banking business on Thursday.
  • The FRSBs will be freely available to individuals until any further information is provided through the government and will be issued in the non-cumulative form only.
  • The Non-Cumulative form of stocks does not entitle or allow the investors to reap the benefits of any unpaid or omitted dividends.
  • The interest rate will be reset every six months for the following half-year and the first reset will start on 1 January 2021. RBI has also not provided any option to pay interest on a cumulative basis.
  • The bonds will be repayable only after the expiry of seven years firm the date in which the bonds were issued. Only specified categories of the senior citizen will be allowed premature redemption of the bonds.
  • The interest that is generated on the bonds will be taxable under the Income-tax Act, 1961 and as applicable to the tax status of the bondholder.

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