7.75% earning savings scheme will replace 8% GoI bonds

The new scheme will commence from January 10.

Closing its popular GOI Savings Bonds scheme earning 8% interest per annum, the government on Thursday replaced it by another with a lower 7.75% rate of interest.

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

The new scheme will commence from January 10, a finance ministry statement said here.

“The government has announced to launch 7.75% Savings (Taxable) Bonds, 2018, commencing from January 10, to enable resident citizens/HUF (Hindu Undivided Families) to invest in a taxable bond without any monetary ceiling,” it said.

These bonds will be available in denominations of Rs 1,000 each and will only be issued in the “Bond Ledger Account” demat form.

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

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

However, economic affairs secretary SC Garg said on Tuesday that the 8% Savings Bonds Scheme, was not being closed, but only being replaced by the 7.75% Savings Bonds Scheme.

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% interest from January 1, while KVPs earn even less (7.3%).

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