Types of Bonds

Types of Bonds

• RBI Relief Bonds
• Saving Bonds Of Reserve Bank
• NRI Bonds
• Tax free Bonds of Public Sector
• Taxable Bonds Of private Sector
• Deep discount Bonds
• Capital Gains Bonds

RBI Relief Bonds

The RBI has stopped the issue of these Bonds with effect from 1.3.2003. Investment in Relief Bonds was particularly suitable for persons who are in the highest income bracket. The main reason why the investment was lucrative is that the entire interest income from the Relief Bond is completely exempt from income tax. 

Earlier Relief Bonds bearing interest of 10%, 9%,8.5% and 7% p.a were issued. The lock in period of these Bonds ,popularly known as Rahat patras, is five years. Besides , there is no wealth tax on an unlimited amount of these bonds. If the Bonds are sold before maturity then while computing the long term capital gain/loss the cost Inflation Index cannot be applied .

Saving Bonds Of Reserve bank

The Reserve bank of India has issued two new types of Bonds . These Bondds are known as 6.5% (Tax exempt)savings Bonds and 8% (Taxable)savings Bonds. The interest income from tax-free Bonds was completely exempt from would be liable to tax on the same with no exemption or deduction of income tax act under section 10. 

The investment in 6.5% saving Bonds, 2003 , Have been suspended with effect from 2004, hence presently the investment in tax free bonds of RBI cannot be made. However , do continue to watch details in the newspaper about new tax free Bonds which may be issued in future.

Now TDS @ 10% with applicable surcharge as well as education cesses would be applicable on interest in excess of RS 10,000 p.a from the taxable savings Bonds issued by the Reserve Bank of India

What are Bonds

Various types of Bonds are available in the market. Before making investment in any of these Bonds, the prudent investor should have a look at the salient features of the bonds. Some of the Bonds may be such that their income happens to be completely exempt from income tax. For some bonds the interest received there from may become fully taxable. Some of the bonds are such while carry lower rates of interest but are useful to save capital gains. Thus, before making a choice about investment in a particular Bond care should be taken to go through the salient features of the Bond and the objective of the investor and only then the option should be exercised in favor of a particular bond. However, all types of bonds are completely exempt from wealth-tax.
Similarly, there is no gift, tax liability on making gift of these bonds. However, the Bonds which were to save your capital gains or which were bought by you to bring you the tax benefit under section 80C should not be sold or gifted for a minimum period of three years from the date of their purchase. Likewise the Capital Gain Bonds of NHAI or REC should not be sold or gifted during the lock-in period or else tax liability may be attracted. Investments in certain demarcated bonds are surely going to help the process of tax planning. Also watch for tax free bonds, the prudent investor must watch the details and announcement from time to time in the newspaper.