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    About Bonds

About Bonds

  • A Bond is a debt instrument issued for the purpose of raising capital by borrowing.
  • Bonds can be issued by companies, financial institutions or the government. Bonds issued by the government are considered the safest bonds.
  • Bonds can be divided into different categories based on tax status, credit rating, issuer type and maturity.
  • Bonds are suitable for regular income purposes.
  • Specific tax saving or tax free bonds are available that offer certain tax benefits to the investor.

8% GOI Taxable Bonds

  • The 8% Government of India Savings (taxable) bonds, 2003 is a bond issued by the Reserve Bank of India (RBI) commencing April 21, 2003. The bonds are available for purchase by individuals on tap i.e. you can buy them as and when required. As the name indicates, the rate of interest offered on the bond is 8% per annum. Interest is taxable in the hands of the investor. Since bonds are issued on behalf of the Government of India, it is the safest investment any investor can look for. However, interest on the bonds is taxable and it has a lock in of six years, which makes the bond less favourable over other investment options

Tenure ROI(%) P.A Compounding
6 Years 8.0% Half Yearly
Salient Features
  • Eligibility for Investments
  • The Bonds may be held by An individual, not being a Non-Resident Indian (NRI) , A Hindu Undivided Family. (+)
  • Limit of Investment
  • There is no maximum limit for investment in the Bonds.
  • Subscription
  • Subscription to the Bonds will be in the form of Cash/Drafts/Cheques. Cheques or drafts should be drawn in favour of the Receiving Office, specified the respective Application Form.
  • Tax Treatment
  • Income-Tax: Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bond holder. (+)
  • Issue Price
  • The Bonds will be issued at par (+)
  • Form
  • The Bonds will be issued and held at the credit of the holder in an account called Bond Ledger Account (BLA) (+)
  • Applications
  • Applications for the Bonds may be made in the prescribed form or in any other form as near as thereto stating clearly the amount and the full name and address of the applicant (+)
  • Receiving Offices
  • Applications for the Bonds in the form of Bond Ledger Account will be received at (+)
  • Nomination
  • A sole holder or a sole surviving holder of a Bond, being an individual, may nominate in such prescribed form or as near thereto as may be, one or more persons who shall be entitled to the Bond and the payment thereon in the event of his/her death
  • Transferability
  • The Bond in the form of Bond Ledger Account shall not be transferable.
  • Interest
  • The bond will be issued in cumulative and non-cumulative form, at the option of the investor. (+)

Capital Gain Bonds

  • 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

Condition for Exemption from Tax U/S 54 EC:

  • The entire capital gain realized is invested within 6 Months of the date of transfer in eligible bonds
  • Such investment is held for 3 Years
  • To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be on security of such bond with 3 years from date of acquisition else, the benefit would be withdrawn.
  • If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.

Power Finance Corporation (PFC), Rural Electrification Corporation Limited (REC), National Highways Authority of India (NHAI) & Indian Railway Finance Corporation (IRFC) are permitted to issue capital gains bonds under Section 54 EC

Issue Name Features Download form
NHAI Capital Gain Bonds Series XVIII Click Here
REC Capital Gain Bonds series XI Click Here
PFC Capital Gain Bonds Series I Click Here
IRFC Capital Gain Bonds Series I

NHAI Capital Gain Bonds Series XII

  • The National Highways Authority of India was constituted by an act of Parliament, the National Highways Authority of India Act, 1988
  • It is responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental thereto
  • The Authority was operationalized in February, 1995 with the appointment of full time Chairman and other Members

National Highway Authorty of India Bonds

Coupon Rating Tax Benefits Tenure Mode of Interest
5.25% AAA Under Section 54 EC 3 years Annual

REC Capital Gains Bonds

  • The Rural Electrification Corporation Limited (REC), a NAVRATNA Central Public Sector Enterprise under Ministry of Power, was incorporated on July 25, 1969 under the Companies Act 1956
  • REC a listed Public Sector Enterprise Government of India with a net worth of Rs. 17,454.38 Crore as on 31.03.13
  • Its main objective is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them
  • REC provides loan assistance to SEBs/State Power Utilities for investments in rural electrification schemes through its Corporate Office located at New Delhi and 20 field units , which are located in most of the States
  • The Project Offices in the States coordinate the programmes of REC’s financing with the concerned SEBs/State Power Utilities and facilitate in formulation of schemes, loan sanction and disbursement and implementation of schemes by the concerned SEBs/State Power Utilities

Rural Electrification Corp Bonds

Coupon Rating Tax Benefits Tenure Mode of Interest
5.25% AAA Under Section 54 EC 3 years Annual

PFC Capital Gain Bonds Series I

  • Minimum size of application is Rs 20,000/- & in multiple of Rs 10,000/- (1 bond) thereafter
  • Interest Rate/Coupon Rate/Yield is 5.25% p.a.

Power Finance Corporation Capital Gain Bonds Series I

Coupon Rating Tax Benefits Tenure Mode of Interest
5.25% AAA Under Section 54 EC 3 years Annual

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Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.


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