To begin with, a bond is a document that guarantees the holder certain rewards and benefits in exchange for financial investment. It is made up of an Issuer, which is the company that issues the bonds, and an Owner, who is the person who owns the bonds. With that, we shall look at tax-saving bonds in this piece.
What Do Tax Saving Bonds Mean?
Tax Saving Bonds are, as the name implies, bonds that help people save money on taxes. These bonds provide owners with particular special tax incentives, allowing them to save a portion of their taxes. Individuals can buy these bonds and earn a set amount of interest, according to a specific provision in the Income Tax Act that provides tax advantages for investments. Tax Saving Bonds have a five-year minimum lock-in duration, making them medium- to long-term investment vehicles.
Tax savings bonds provide reasonable yields without the risk associated with other securities, making them excellent for people who want to save money without jeopardizing it.
To add to that, the bond can be purchased by any resident individual or a HUF. These bonds, however, cannot be passed along from one person to the next. The savings bond is also not available for secondary market trading. Because of its transferability, it cannot be used as loan collateral as well.
What are the differences between Tax Saving Bonds & Tax-Free Bonds?
Aside from Tax Saving Bonds, another popular option is Tax-Free Bonds, which are essentially tax-free bonds. It’s easy for the novice to mix these two, but there are a few key features that distinguish them.
| Tax Saving Bonds | Tax-Free Bonds | |
|---|---|---|
| Meaning | The investor gets the tax rebate while subscribing to these bonds | Investors are not obligated to pay taxes on the interest they earn. |
| Interest Earned on These Bonds | Taxable | Tax-Free |
| IT Sections (Deductions) | deductions under section 80CCF are available (Rs. 20,000 p.a.) | Not Eligible for any rebates in Taxes |