Relief bonds provide relief

 (Amt in '000)

Male

S.C.

Female

Male

S.C.

Female

Gross Income

65

168

95

145

218

168

Less : Sec. 80L

15

15

15

15

15

15

Net Income

50

153

80

130

203

153

Gross Tax

-

20

5

15

35

20

Sec. 88

-

-

-

15

15

15

Sec. 88B

-

20

-

-

20

-

Sec. 88C

-

-

5

-

-

5

Amount in Bonds

812

2,104

1,187

1,812

2,729

2,104

Note: S.C= Senior Citizen.  Table-1 gives the maximum income that can be earned by various classes of persons (with and without Section 88 shelter) to these bonds without being required to pay any tax.  Features

• Individuals, may hold the bonds singly or jointly, or on ‘anyone or survivor’ basis or on behalf of a minor as father, mother or legal guardian. HUFs also can subscribe. These are not available to NRIs.
• Investors can opt for either half-yearly or cumulative interest. For the tax-free bond, the cumulative value at maturity is Rs 1,376.90 on a face value of Rs 1,000 and it is Rs. 1,480.25 for the taxable bond.
• The old bonds will continue to enjoy the old rates until their maturity.
• There is no maximum limit on investment in the bonds. Investments can be made in multiples of Rs 1,000.
• The tax-free bonds shall not be transferable except by way of gift to a relative as defined in Section 6 of the Indian Companies Act, 1956, by execution of an appropriate transfer form and execution of an affidavit by the holder. The taxable bonds cannot be gifted.
• The bonds shall not be tradeable in the secondary market and shall not be eligible as collateral for loans from banks, financial institutions and non-banking financial companies (NBFC) etc.
  
  Premature encashment

 Tax-free Bonds can be surrendered after a minimum lock-in of three years from the date of issue, any time after the sixth half year but redemption payment will be made on the following interest payment due date.  Thus the effective date of premature encashment will be July 1 and January 1 every year. However, 50 per cent of the interest due and payable for the last six months of the holding period will be recovered in such cases both in respect of cumulative and non-cumulative Bonds as indicated by Table-2. 

Table-2 : Premature Encashment of RBI Tax-free Savings Bonds
Tenor of Holding	Amount Payable  per Rs 1,000 Invested (Non cumulative)	Amount Payable per Rs 1,000 Invested (Cumulative)
7th half year	Rs 1,016.25	Rs 1,231.25
8th half year	Rs 1,016.25	Rs 1,271.20
9th half year	Rs 1,016.25	Rs 1,312.50

In sum  Since the pure-growth, open-ended, debt-based schemes appear to have possibly outlived their utility, these Savings Bonds have gradually emerged as a good parking place for investible funds for small investors and high net worth individuals.  Even for retired persons, as can be seen from the above table, as much as Rs 8.12 lakh can be invested on a tax-free basis. Considering the interest rates generally available on other fixed income instruments, make hay while the sun shines.  (The author may be contacted at anshanbhag@yahoo.com)