Centre To Issue 6.5% Savings Bond

The Centre has decided to issue 6.5 per cent savings bond, 2003 (non-taxable) with effect from March 24, 2003.

The sale of the seven per cent Savings Bond, 2002, ceased with effect from February 28, 2003 after a 50 basis points cut in the interest rate small savings schemes was announced in the Union Budget.

The Bonds will be issued at par i.e. at Rs 100. They will be issued for a minimum amount of Rs 1,000 (face value) and in multiples thereof.

Accordingly, the issue price will be Rs 1,000 for every Rs 1,000 (Nominal). The bonds shall be repayable on the expiry of five years from the date of issue.

 

There will be no maximum limit for investment in the bonds. Interest on the bonds will be exempt from income tax under the Income Tax Act, 1961, and the bonds will be exempt from wealth tax under the Wealth Tax Act, 1957.

The bonds will be issued in cumulative and non-cumulative form, at the option of the investor. They will earn interest at the rate of 6.5 per cent per annum.

Interest on non-cumulative bonds will be payable at half-yearly intervals from the date of issue. Interest to bond holders, going in for the non-cumulative option, will be paid from date of issue up to June 30/December 31, as the case may be and thereafter at half-yearly for period ending June 30/December 31 on July 1 and January 1.

Interest on cumulative bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal.

In the latter case, the maturity value of the bonds shall be Rs 1,377 (being principal and interest) for every Rs 1,000 (Nominal).

Interest on bond in the form of bond ledger account will be paid, by cheque/warrant or through ECS by credit to bank account of the holder as per the option exercised by the investor/holder.

The bonds in the form of bond ledger account 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 transfer form.

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.

After minimum lock in period of 3 years from the date of issue, an investor can surrender the Bonds at any time after the 6th half year but redemption payment will be made on the following interest payment due date (as indicated below).

Thus the effective date of premature encashment will be 1st July and 1st January every year.

However, 50 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. The bonds will be issued with effect from March 24, 2003, and will remain on-tap till further notice.

The date of issue of the bonds in the form of stock certificate or bond ledger account will be the date of receipt of subscription in cash or the date of realisation of draft/cheque.