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.