7.75% Savings (Taxable) Bonds, 2018

Written by Vidya Kumar

January 25, 2018

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Executive Summary: The Government has replaced the 8% Taxable bonds with 7.75% taxable bonds. The holding period is 7 years. There is no maximum limit on investment on them. The real rate of return is not very lucrative. There are other investments that offer better terms. Moreover the holding period is long. They should only be considered if you have exhausted your limit on PPF and Senior Citizens scheme (if applicable).

The government recently withdrew the 8% Savings taxable bonds. They have been replaced by the newly introduced 7.75% Savings taxable bonds. Let us look at the key features –
Features
Details
Issue Details
Issued at par at Rs. 1000
Issued only in demat form
Investment Amount
Minimum amount – Rs. 1000
Maximum amount – No Limit
Who can invest
Resident Indians
Resident Indians on behalf of a minor
Hindu Undivided Families (HUFs)
Tenure
7 Years
Maturity and Returns
Interest – 7.75% per annum.
Interest on cumulative bonds will be compounded twice a year. Interest on non-cumulative bonds will be paid twice – August and February
Taxability
Interest earned on the bonds will be added to the bond holder’s income and tax will be liable as per the income tax slab applicable.
TDS will be deducted at source for interest payments and maturity proceeds
Redemption
They can be redeemed earlier. The penalty is 50% of interest on last 6 months of holding period
If you are above 60 years old- tenure of bond is 6 years
If you are above 70 years old – tenure of bond is 5 years
If you are above 80 years old – tenure of bond is 4 years
Mode of Investment
Walk into any of the 23 designated banks (and their branches) and receiving offices. You can get the application from major banks like SBI, ICICI, HDFC etc. Complete the form (online or on paper) and give the investment amount and you will get a certificate of Holding. The bonds will be transferred to your demat account
Other Features
Nomination facility is available
It cannot be treated as collateral for loan
It cannot be traded in the secondary market
It is available till further notice
NRIs cannot invest in these bonds.
There is no wealth tax on these bonds
It is a low risk investment

Should I Invest?
The interest rate has been reduced. Moreover interest earned is taxable. Sukanya Samridhi Scheme offers 8.1%. PPF offers 7.6% (which is less) but interest earned is tax-free which means overall returns are higher. For senior citizens, the Senior Citizens Savings Scheme gives 8.3% and has a lower tenure. The plus point is that there is no limit on investment. Unless you have exhausted your limit of investment in PPF and Senior Citizens Schemes and you have surplus amount left even after investing in other more lucrative assets, you can consider these bonds. If you have many years left for retirement, it is better to look for investments that have more potential to grow your capital ind increase your returns on investment

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