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7.75% earning savings scheme will replace 8% GoI bonds

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

The new scheme will commence from January 10, a Finance Ministry statement said here.

“The government has announced to launch 7.75 per cent 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 S.C. Garg said on Tuesday that the 8 per cent Savings Bonds Scheme, was not being closed, but only being replaced by the 7.75 per cent Savings Bonds Scheme.

Earlier this week, former Finance Minister P. Chidambaram criticised the Narendra Modi government on this account, saying: “GoI 8 per cent taxable bonds have been the safe harbour of the middle class, especially retirees and senior citizens, since 2003. Government has taken away their only safety net.”

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).

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