Home Financial & Banking Terms What is Tax Saving Bond?

What is Tax Saving Bond?

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Tax Saving Bond

A Tax Saving Bond is a financial instrument that allows the investor to deduct the amount invested from his taxable income for the year of investment.

Terms and Conditions

  • Any resident Indian, including HUF (Hindu Undivided Families) but excluding minors, can invest in these bonds;
  • The minimum amount to be invested is Rs.5,000/-. There is no ceiling on investment. However, the maximum amount that is eligible for tax deduction benefit in a single financial year (FY) is Rs.20,000/-;
  • The investment is subject to a lock-in period of five years. Thereafter, the bonds can be traded on the stock exchanges where they are listed;
  • The tax deduction benefit is allowed over and above the limit that is specified in Section 80C of the Income Tax Act, 1961;
  • These bonds can be held in either physical form or dematerialized (demat) form;
  • Maturity of tax savings bonds is usually after a period of 10 to 15 years;
  • The rate of interest on such bonds cannot be higher than the yield on Government securities (G-Sec) of similar maturity;
  • The investor has the option to receive interest payment annually or, cumulatively along with the principal invested, at the time of maturity;
  • The interest earned on tax saving bonds is taxable in the hands of the investor.
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Randolph Rowe is a professional banker and former General Manager of Small Industries Development Bank of India (SIDBI). He brings with him the wealth of 34 years of all-round experience in the banking sector - comprising 12 years with IDBI and 22 years with SIDBI - which he combines with his flair for writing.

1 COMMENT

  1. It is really nice to know that a tax saving bond exits. And it’s logical to start the deposit amount from five thousand. This bond will help a lot of professionals who are about to pay tax as his/her salary is slightly higher than the tax margin. This too is a really informative post.

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