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Government Introduced New Floating Rate Savings Bonds, 2020 (Taxable) Scheme w.e.f July 1, 2020

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Introduction of Floating Rate Savings Bonds, 2020On June 26, 2020, the Government has notified the new Floating Rate Savings Bonds (FRSB), 2020 (Taxable) Scheme in place of 7.75% Savings (Taxable) Bonds, 2018, with effect from July 1, 2020. The 7.75% Savings (Taxable) Bonds, 2018 Scheme was ceased for subscription from the close of banking business on May 28, 2020. Click Here to Read: Government withdrew 7.75% Savings (Taxable) Bonds scheme due to declining interest rates

  • The Floating Rate Savings Bonds, 2020 (Taxable) Scheme is going to issue a floating rate, taxable savings bond for an initial coupon of 7.15%, payable on January 1, 2021.
  • These bonds will be issued by Reserve Bank India (RBI) on behalf of the Government of India (GoI).
  • The key difference in both schemes is that the earlier one was fixed, and now this is going to be floating. This will work as an inflation hedge while saving the government from higher cost when rates are low.

Following table listed the key features of scheme:

Item Details
Eligibility  The bonds will be available only for resident Indians, or to a Hindu undivided family (HUF), not for Non Resident Indians (NRI)
Receiving Offices The bond will be available at State Bank of India (SBI) and other nationalised banks, as well as four private sector banks viz. Industrial Development Bank of India (IDBI) Bank Ltd, Axis Bank Ltd, HDFC (Housing Development Finance Corporation ) Bank Ltd and Industrial Credit and Investment Corporation of India (ICICI) Bank Ltd.
Limit  Minimum Amount: Rs 1000/- with no maximum limit 
Form of the Bonds The Bonds will be issued only in the electronic form and held at the credit of the holder in an account called Bond Ledger Account (BLA), opened with the Receiving Office.
Interest Rate (Floating) The interest on the bonds is payable semi-annually on 1st Jan and 1st July every year. There is no option to pay interest on a cumulative basis.The coupon/interest of the bond would be reset half yearly starting with Jan 1st, 2021 and thereafter every July 1st and Jan 1st. The coupon rate for first coupon period, payable on January 1, 2021 is fixed at 7.15%.
Repayment/Tenor The Bonds shall be repayable on the expiration of 7 years from the date of issue. Premature redemption shall be allowed for specified categories of senior citizens.
Tax treatment Interest on the Bonds will be taxable under the Income-tax Act, 1961 as amended from time to time.

Points to be noted:

-Subscription to the bonds will be in the form of cash (up to Rs 20,000), drafts, cheques or any electronic mode. 

-The bonds won’t be transferable, except to a nominee or legal heir in case of death of the holder of the bonds.

Click Here for Official Link-PIB

Click Here for Official Link-RBI

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).