Tax-saving bonds are designed to partially or fully release a bond holder from the burden of taxes. The tax-saving bonds in India are issued by the Reserve bank of India, the nationalized banks, and certain private sector banks also.
The Reserve Bank of India issues special tax savings bonds in India, with the aid of the Public debt Offices. These bonds are known as 6.5% Savings Bonds, 2003 and the term of these savings bonds is 5 years. As the name suggests, the rate of interest of these bonds is 6.5% per annum and the interest is paid off on a half-yearly basis. These bonds are issued in the form of Stock Certificates and the Bank Ledger Account facility is provided by the Reserve Bank of India, the commercial banks, and private sector banks. There are no specifications made as to the maximum limit of investment on this bond by an investor.
The 6.5% Savings Bonds, 2003 are available in 2 categories. One is the 6.5% Savings Bonds (Cumulative Bond) and the other is 6.5% (Savings Bonds Non-cumulative bonds). The payment of interest is done either through ECS or through Interest Warrant in case of 6.5% Savings Bonds Non-cumulative bonds. Whereas for 6.5% Savings Bonds Cumulative bonds, the total interest amount is paid together with the capital during redemption. Both the categories of 6.5 % Savings Bonds, 2003 have the provision for premature redemption. The 6.5% Savings Bonds, 2003 holders are exempted from the burden of any income tax levied on the interest income, as per the Income Tax Act, 1961.
The other commercial as well as private sector banks which provide the 6.5 % Savings Bonds, 2003 are:
- Central Bank of India
- UTI Bank Ltd.
- Dena bank
- HDFC
- Punjab National Bank
- ICICI
- Bank of Maharashtra
- IDBI
- Indian Overseas Bank
- Canara Bank
- Bank of Baroda
- Indian Bank
- Union Bank
- Syndicate Bank
- Allahabad Bank
Apart from the 6.5 % Savings Bonds, 2003 the above commercial and private sector banks also offer 8% Savings Bonds, 2003. The term of the 8% Savings Bonds, 2003 is 6 years and the amount of interest on the 8% Savings Bonds is also paid off on a half-yearly basis. The abovementioned banks are empowered to provide the facility of Bond Ledger account to the investors. Similar to the 6.5% Savings Bonds, the 8 % Savings Bonds are of two types - the 8% Cumulative Savings Bonds and 8% non-cumulative savings bonds. The interest payments on 8% non-cumulative bonds are done through Interest Warrant as well as ECS and the interest payments on 8% cumulative bonds is made with the principal during redemption. The 8% Savings
Bonds, 2003 are taxable as per the regulations of the Income Tax Act, 1961 but the tax is not deductible at source.
ICICI and IDBI also offer other tax savings bonds in India. The Tax Saving Bonds offered by ICICI is of 3 varieties - the Tax Saving Bond Option I, Tax Saving Bond Option II, and Tax Saving Bond Option III. All the bonds have been priced at Rs. 5,000. However, the face value of each bond is different. The face value of Tax Saving Bond Option I is Rs.5,000, of option II is Rs.6,660, and that of option III is Rs. 9,000. Similarly, the tenure of all the 3 bonds is different. The tenure of Tax Saving Bond Option I is 3 years, of Tax Saving Bond Option II is 3 years 4 months, and that of Tax Saving Bond Option III is 6 years 6 months. Tax Saving Bond Option II and III do not have facility of monthly or yearly interest payments. The bond holders are entitled to receive rebates as per Section 88 of the Income Tax Act, 1961.
Contact Us 
