Skip to content

What are Tax Saving Bonds: Its Benefits and How to Invest?

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 BondsTax-Free Bonds
MeaningThe 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 BondsTaxableTax-Free
IT Sections (Deductions)deductions under section 80CCF are available (Rs. 20,000 p.a.)Not Eligible for any rebates in Taxes

Key Benefits of Tax saving bonds

1) An investor can choose between a cumulative and a non-cumulative investment strategy.
2) They are low-risk investment tools that are suitable for folks who are just getting started with investing.
3) The maximum benefit of tax-saving bonds that can be deducted is Rs. 20,000.
4) One can invest as low as Rs.1000/- and in multiple thereof.

RBI Saving Bonds for Senior Citizens

RBI Floating Rate Bonds has been notified on 1st July 2020. The Indian government has allowed the issuance of Floating Rate Savings Bonds for individuals and HUF with no upper limit on Investments. The interest rate has been linked with prevailing NSC rates (i.e., 0.35% above prevailing NSC Rates) 
As NSC Rate is 6.80% then the RBI FRB Interest will be 7.15% (0.80%+ 0.35%), The interest on these bonds will be paid half-yearly on 1st Jan and 1st July every year.
These bonds are issued in BLA (Bond Ledger Account) and are non-transferable and No loan will be available from any bank.

How to buy Tax Saving Bonds online in India?

The central government and state governments both issue government bonds to support various government projects. Bonds can be purchased in two ways: on the primary market or on the secondary market.
RBI bonds can be purchased through private or public banks, either online or offline. As a result, purchases can only be made at banks or businesses that have been authorized by the government of India.