Floating-Rate Savings Bonds: RBI Allows Subscriptions Via Retail Direct Portal

With a focus on individual investors, the Reserve Bank of India (RBI) has allowed subscriptions for Floating-Rate Savings Bonds (FRSBs), 2020 (Taxable), through its Retail Direct Portal. 

The government issues FRSBs, which are interest-bearing bonds. They are non-tradeable and have a maturity period of seven years from the date of issue. The difference between Floating-Rate Savings Bonds and traditional bonds is their variable coupon rate, which is reset at predetermined intervals.

Earlier, such bonds were exclusively accessible at select branches of the State Bank of India (SBI), nationalised banks, private sector banks authorised by the RBI, and other such entities designated by the apex bank, following the June 2020 government guidelines on Floating-Rate Savings Bonds. 

Prior to this, the Retail Direct Portal allowed retail investors to invest in Central Government Securities (G-Secs), Treasury Bills (T-Bills), State Government Securities, and Sovereign Gold Bonds (SGBs).

It is now possible for retail investors to subscribe to these bonds using various methods, including cash (maximum of Rs 20,000), drafts, cheques, or electronic modes.

The central bank had raised the interest rate on its Floating-Rate Savings Bonds, 2020, from 7.35% to 8.05%, valid until June 30, 2023, in its July review. 

The interest rate on RBI savings bonds has a 0.35% premium over the National Savings Certificate (NSC) interest rate. Adjustments in any form in the NSC interest rate are replicated in the interest rate offered on RBI savings bonds.

Interest earnings from RBI FRSBs fall in the taxable income category and are taxed as per the Income-tax Act, 1961, based on the income tax slab that an investor falls under.

FRSBs are eligible for Tax Deducted at Source (TDS) at the time of interest payments. In case investors are eligible for any exemptions, they are required to declare them in the application form.

The RBI FRSBs are exempt from wealth tax under the Wealth Tax Act. 1957, there are no deductions available on the principal investment, though.