Floating Rate Savings Bond 2020 (Taxable)

The Reserve Bank of India recently announced the launch of the ‘Floating Rate Savings Bond 2020 (Taxable)’. Available for subscription from 1st July 2020, these bonds provide a unique investment opportunity. This article delves into the salient features of this newly introduced bond.

Understanding the Salient Features of Floating Rate Savings Bond 2020 (Taxable)

The features of the ‘Floating Rate Savings Bond 2020 (Taxable)’ are outlined below for your convenience.

Particulars	Description/ Details
Eligibility for Investment in the Bonds	An individual (resident in India) including joint holding; A Hindu Undivided Family.
Mode of Payment	Cash (maximum payment up to INR 20,000) Drafts Cheque Any other electronic mode accepted by the Receiving Offices
Issuance of Bonds	Issued in electronic form only and held in a 'Bond Ledger Account' with the Receiving Office.
Repayment of Bonds	Repayment is due seven years from the date of issue.
Minimum and Maximum Investment Amount	Minimum: INR 1,000 Maximum: No limit
Transferability of Bonds	Non-transferable except in the case of the death of the holder, where transfer to a nominee or legal heir is allowed.
Tradability / Advances Against Bonds	Not tradable in the secondary market; ineligible as collateral for loans from banks, financial institutions, and non-banking financial companies.

Interest Feature of Floating Rate Savings Bond 2020 (Taxable)

The interest or coupon of the bond is reset semi-annually, starting 1st January 2021, and then on every 1st July and 1st January thereafter. The initial coupon rate, payable on 1st January 2021, is 7.15%, set at 0.35% higher than the prevailing National Saving Certificate rate.

Interest is payable semi-annually on a non-cumulative basis and is credited electronically to the bondholder's bank account. Learn how interest from such investments is treated by reading the TDS on Salary guide.

List of Receiving Offices

Applications for the Floating Rate Savings Bond 2020 (Taxable) are accepted at designated branches of:

State Bank of India
Bank of India
Bank of Maharashtra
Bank of Baroda (including Vijaya and Dena Bank)
Central Bank of India
Canara Bank (including Syndicate Bank)
Indian Bank (including Allahabad Bank)
Punjab National Bank (including United Bank of India and Oriental Bank of Commerce)
UCO Bank
Union Bank of India
HDFC Bank Ltd.
IDBI Bank Ltd.
ICICI Bank Ltd.
Axis Bank Ltd.

Learn about financial institutions by delving into Business ITR Filing in Nagpur.

Tax Treatment of Bonds

No tax benefits are available for investments in these bonds. The interest earned is taxable as per the applicable tax slab under Income Tax, and tax is deducted at source upon interest payment. For a detailed understanding of tax obligations, see our essential guide for Income Tax Form 16 filing.

Premature Encashment Facility

Premature encashment is available only for account holders aged 60 years and above, and only after completing a minimum lock-in period, as detailed below:

Particulars of Investors	Lock-in Period
Investor aged 60 to 70 years	6 years
Investor aged 70 to 80 years	5 years
Investor aged 80 years or above	4 years

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Frequently Asked Questions

Common questions about Floating Rate Savings Bond.

The minimum amount of investment in the Floating rate savings bond 2020 (Taxable) is INR 1,000. There is no maximum limit for investment in these bonds.

Individuals residing in India, including joint holders, and Hindu Undivided Families (HUFs) are eligible to invest in the Floating rate savings bond 2020 (Taxable).

The interest rate on these bonds will be reset semi-annually, starting from 1st January 2021. It will be linked to the prevailing National Savings Certificate rate, with a spread of +35 basis points (0.35%) over the respective NSC rate.

The interest on the Floating rate savings bond 2020 (Taxable) will be paid semi-annually (half-yearly) on 1st January and 1st July every year. The interest will be paid on a non-cumulative basis.

No, the Floating rate savings bond 2020 (Taxable) cannot be traded in the secondary market. They are also not eligible as collateral for loans from banks, financial institutions, or NBFCs.

The payment for investing in these bonds can be made through cash (up to INR 20,000), drafts, cheques, or any other electronic mode accepted by the Receiving Offices.

The applications for the Floating rate savings bond 2020 (Taxable) will be received at designated branches of various banks, including State Bank of India, Bank of India, Bank of Maharashtra, and several other public and private sector banks.

No, there is no tax benefit available for investment in the Floating rate savings bond 2020 (Taxable). The interest received on these bonds will be taxable as per the applicable income tax slab rates.

Yes, the Floating rate savings bond 2020 (Taxable) can be transferred to a nominee or legal heir in case of the death of the bond holder. However, they are not transferable otherwise.

Premature encashment of the Floating rate savings bond 2020 (Taxable) is allowed only for investors aged 60 years and above, after completing a minimum lock-in period of 4 to 6 years, depending on the investor's age bracket.