8% GoI savings bond scheme replaced by one paying 7.75%

Union Finance Minister Arun Jaitely (File Photo/IANS)

New Delhi, Jan 2  The government on Tuesday replaced its GOI Savings Bonds, 2003, scheme earning eight per cent interest per annum by another which has a lower rate of interest at 7.75 per cent.

On Monday, the government had announced that its GOI Savings Bonds, 2003, will cease subscription from the close of banking business on January 2.

“The 8 per cent Savings Bonds Scheme, also known as RBI Bonds Scheme, is not being closed. 8 per cent Scheme is being replaced by 7.75 per cent Savings Bonds Scheme,” Economic Affairs Secretary S.C. Garg tweeted on Tuesday.

The bonds — with a tenure of six years, a minimum investment of Rs 1,000, no limits on maximum investment and the option to receive interest on a half-yearly basis — are available in physical form only and are not listed or tradable on stock exchanges.

The interest received from these bonds is taxable at the marginal rate of income tax the investor is liable for.

These became a preferred choice for investors seeking fixed income like senior citizens and pensioners after the government cut interest rates on fixed deposits and small savings schemes like the post office monthly income scheme and public provident fund (PPF) to below eight per cent in April 2016.

Last week, the government cut the interest rates on small saving schemes, including National Savings Certificates (NSCs), Public Provident Fund (PPF) and Kisan Vikas Patra (KVP), by 0.2 percentage point for the fourth quarter of the fiscal (January-March).

The PPF and NSCs earn 7.6 per cent interest from January 1, while KVPs earn even less (7.3 per cent).

Earlier, PPF, NSC and KVP were offering 7.8, 7.8 and 7.5 per cent interest, respectively.

The interest on the Senior Citizen’s Savings Scheme of five-year period has been retained at 8.3 per cent.