ET in the Classroom: Can 8% govt bond be a safe and sure bet?

After the cut in small savings rates of post offices and bank deposit rates, investors are on the lookout for alternative products which offer them safety and slightly higher returns. The 8% savings bonds offer slightly more than bank deposits and locks your money for six years.

1. Who can apply in 8% Savings GOI Bonds?
You can apply for the 8% Savings (Taxable) Bonds if you are: an Individual, not being a Non-resident Indian in his or her individual capacity or in individual capacity on joint basis or in individual capacity on anyone or survivor basis or on behalf of a minor as father/mother/legal guardian even Hindu Undivided Family (HUF) and eligible charitable institutions can apply.

2. What interest will I earn from the Bonds?
Investors can choose from cumulative and noncumulative bond options. Bonds will bear interest of 8% p.a. and are payable half-yearly. The interest payment dates are February 1 and August 1 for non-cumulative investments. For the cumulative option, the value of the investments at the end of 6 years would be Rs 1,601 (being principal and interest) for every Rs 1,000 invested. Interest on the bonds is taxable under Income Tax Act 1961

3. What is the minimum and maximum limit for investment in the 8% Savings (Taxable) Bonds?
You need to invest a minimum of Rs 1,000. However, there is no maximum limit on investment, but it needs to be in denominations of Rs 1,000. The tenure of the bond is 6 years from the date of issue. No interest will accrue after the maturity of the bond.

4. How much tax do I have to pay?
The interest income from the bonds is taxable. TDS is deducted at the time of interest payment as per the prevailing IT rules.

5. In what form are these bonds issued?
Bonds are issued in the form of a Bond Ledger Account in denominations of Rs 1,000. They are issued through SBI, private sector banks like ICICI, HDFC Bank and institutions like Stock Holding Corporation of India. There is a facility to make a nomination in these bonds.