RBI Floating Rate Savings Bonds 2020 (Taxable)

What is the lock-in period for RBI Floating Rate Savings Bonds?

The RBI Floating Rate Savings Bonds 2020 (Taxable) have a mandatory 7-year lock-in period from their issue date. Investors cannot sell these bonds in the secondary market before maturity. This makes them good for long-term financial planning. The bonds do not work as collateral for loans from banks or other financial institutions, which rules out the loan against securities route that other holdings allow. This keeps the investment for its full tenure, giving the bondholder stability. The lock-in ensures investors hold the bonds for the intended period.

However, early redemption is possible for certain senior citizens. Investors aged 80 years or more can redeem after 4 years. Those between 70 and 80 years can redeem after 5 years. People aged 60 to 70 years can redeem after 6 years. An early redemption incurs a penalty of 50% of the last coupon payment. This offers some flexibility for older investors. It still keeps the bond’s long-term goal. The penalty discourages early withdrawals.

What is the current coupon rate and how does it reset?

The current interest rate for RBI Floating Rate Savings Bonds is 8.05% per annum, as of early 2026. This rate is not fixed. It adjusts every six months, showing market changes. Interest is paid semi-annually, giving investors a regular income. Payments happen on January 1st and July 1st each year. This floating rate ensures returns stay competitive with market conditions over the bond’s life. It offers a dynamic return.

The coupon rate resets using a specific formula. It is the National Savings Certificate (NSC) rate plus a 0.35% spread. This link makes the rate clear. It ties the bond’s returns to a known government savings plan. The reset happens on January 1st and July 1st. This changing rate protects investors from inflation. Interest can go up if the NSC rate rises. It offers a clear benefit over fixed deposits, where rates stay constant for the whole tenure — see the current best FD interest rates for the comparison. The bond rate is always 0.35% higher than the NSC rate.

How are RBI Floating Rate Savings Bonds taxed?

Interest earned on RBI Floating Rate Savings Bonds is fully taxable under the Income-tax Act, 1961. This means the interest income adds to the bondholder’s total income. It is taxed based on their income tax slab. Tax is deducted at source (TDS) when interest is paid. Investors can claim an exemption under relevant Income Tax Act rules if applicable. They state this in their application form. Investors must think about their tax bracket when looking at net returns from these bonds. The TDS ensures tax compliance.

Unlike some other government plans, these bonds do not offer specific tax exemptions on interest income. However, the bonds are exempt from Wealth-tax under the Wealth-tax Act, 1957. While interest is taxable, government backing makes the principal and interest safe. This makes them a secure choice, even with tax effects. Investors should ask a tax advisor for specific guidance on their tax situation for these bonds. This helps them understand their net gain.