In accordance with section 54 EC of the Income Tax Act, 1961, all categories of tax payers would be eligible to save tax in respect of long term capital gains by making investments in certain Bonds prescribed.

These bonds are classified as ‘long-term specified asset’ and are issued by REC, NHAI, PFC and IRFC.

These bonds are specifically for investors who have made some long term capital gains, and would like to save capital gain taxes on this amount.

Only long term capital gains are eligible for these bonds though, and short term gains are not covered under section 54EC.

The interest from these bonds is fully taxable.

Companies offfer of Thease Bonds – REC LTD., NHAI, PFC, IRFC.

the Government of India has decided to launch the Floating Rate Savings Bonds 2020 (Taxable) scheme, with effect from July 01, 2020, in terms of GoI Notification F.No.4(10)-B(W&M)/2020 dated June 26, 2020.

The coupon rate will be linked/pegged with the prevailing National Saving Certificate (NSC) rate with a spread of (+) 35 bps over the respective NSC rate.

Who is Eligible to Invest in Floating Rate Savings Bonds 2020 (Taxable)?

A person resident in India,

• in her or his individual capacity, or
• in individual capacity on a joint basis, or
• in individual capacity on anyone or survivor basis, or
• on behalf of a minor as father/mother/legal guardian

A Hindu Undivided Family

Issue Price

• At par – i.e. Rs 1,000 for every Rs 1,000 (nominal) face value

Minimum Amount

• Rs 1,000 (Face value) in multiples thereof

Maximum Amount

• There Will be No maximum limit for investment in the Bonds.

Maturity/ Repayment of Principal

• 7 years (lock-in-period) from the date of the issue. Premature Facility is available to the eligible investors after the Lock-in period of 4, 5, and 6 years in the age bracket of 80 years and above, between 70 to 80 years and 60 to 70 years respectively.

Interest (Floating) Of Floating Rate Savings Bonds 2020 (Taxable) –

• Option – The interest on the bonds will be payable at half-yearly intervals on Jan 1st and July 1st every year. There is no option to pay interest on a cumulative basis.
• Rate – 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 the first coupon period, payable on January 1, 2021, is fixed at 7.15%.
• Base Rate – The coupon rate will be linked/pegged with the prevailing National Saving Certificate (NSC) rate with a spread of (+) 35 bps over the respective NSC rate.

Tax treatment

• Interest on the Bonds will be taxable under the Income-tax Act, 1961 as amended from time to time and as applicable according to the relevant tax status of the Bondholder.

TDS on interest

• Non-cumulative option: At the time of making payment to investors
• Cumulative option: On the interest portion, at the time of payment of the maturity proceeds

Transfer ability/Liquidity

• The Bonds held to the credit of Bond Ledger Account (BLA) of an investor shall not be transferable, except transfer to a nominee(s)/legal heir in case of death of the holder of the bonds.

Eligible for Collateral

• Not eligible as collateral for loans from banking institutions, non-banking financial companies or financial institutions

Nomination

• Nomination and its cancellation shall be in accordance with the provisions of the Government Securities Act, 2006 (38 of 2006), and the Government Securities Regulation, 2007, published in Part III, Section 4 of the Gazette of India dated December 1, 2007.

Form of Holding

• 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

Risk

• 100% risk free investment option

What is a tax-free bond?

• Security issued by a company, financial institution or the government
• Offers regular or fixed payment of interest in return for borrowed money for a specified period

Why are these bonds called “tax-free”?

• You don’t have to pay any tax on the interest earned from these bonds (Income Tax Act, 1961)

How do tax-free bonds work?

• Tenure: You can invest for up to 10, 15, or 20 years – it’s your choice.
• Liquidity: You can easily sell your bonds any time before maturity.
• Safe investment option:You can be sure of receiving the promised regular interest..
• Tax-exempted:You are not required to pay any taxes on the interest you earn.
• Demat account is optional:You can hold these bonds in physical form, too.

Why invest in tax-free bonds?

• Tax-free income
• Low risk
• Easy liquidity
• Demat optional
• Ratings by various agencies available

Investors want investment options that manage liquidity and risks while offering substantial returns. Debentures are long-term financial instruments issued by a company for specified tenure with a promise to pay fixed interest to the investor. Debentures are of two types, namely convertible debentures and non-convertible debentures (NCD).Non-convertible debentures (NCD) are those which cannot be converted into shares or equities. NCD interest rates depend on the company issuing the NCD. NCD investment can be held by individuals, banking companies, primary dealers other corporate bodies registered or incorporated in India and unincorporated bodies.

Key Features of NCDs

• Easily Tradable : NCD investment are listed on the open stock markets and exchanges.
• Direct Bank Credit : Interest on NCD investment is paid by a direct bank credit.
• Digitalised : Issuance and Trading of NCD investment is in the demat form only.
• Lower Risk : Only companies with a good credit rating can issue secured NCDs.

Key Benefits of NCDs

• Better Returns : Secured NCDs provide a higher NCD interest rate to their investors.
• Good Liquidity : Sell NCD investments on stock exchanges or exercise the Put/Call option.
• No Upfront Tax : No tax is deducted at source as per the provisions of Sec 193 of the IT Act
• Diversification : NCD Investments add diversification to your portfolio with income security