Bonds

1. RBI Floating Rate Savings Bonds

After discontinuing its 7.75% fixed interest rate bonds on 28th May 2020, the RBI introduced the new Floating Rate Savings Bonds on 26th June 2020, which became available from 1st July 2020.

Key Highlights

Minimum investment: ₹1,000

Maximum investment: No upper limit

Interest payout: Semi-annually on 1st January and 1st July every year

Initial coupon rate: The interest payable on 1st January 2021 was 7.15%

Reset frequency: Interest rate will be reset every 6 months

Cumulative option: Not available; interest cannot be taken on a cumulative basis

Taxation: Interest is fully taxable under the Income-tax Act, 1961

Tenure: The bonds are repayable after 7 years from the date of issue

2. Capital Gain Bonds (Section 54EC)

You can claim tax exemption on long-term capital gains (LTCG) arising from the transfer of capital assets such as real estate or gold, if you reinvest the gains into Capital Gain Bonds specified under Section 54EC of the Income-tax Act, 1961.
The investment must be made within six months of the asset’s transfer. The exemption is proportionate to the LTCG invested—if you invest less than the total gains, only that proportion will be exempt.

Key Features

Safety: 54EC bonds are AAA-rated and considered safe.

Taxation:

Interest earned is taxable.

No TDS is deducted on the interest.

Wealth tax is exempt.

Tenure: Lock-in period of 5 years (effective from April 2018); bonds are non-transferable.

Investment Amount:

Minimum: 1 bond = ₹10,000

Maximum: 500 bonds = ₹50 lakhs in a financial year

Interest Rate: 5.00% per annum

Interest Payment: Payable annually