What Are RBI Relief Bonds?

POSTED BY manish ON March 5, 2009 COMMENTS (61)

In this article we will talk about RBI relief Bonds. Some bonds have a special provision that allows the investor to save on tax. These are termed as Tax-Saving Bonds, and are widely used by individual investors as a tax-saving tool. Examples of such bonds are:

  • Infrastructure Bonds under Section 88 of the Income Tax Act, 1961
  • Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961
  • RBI Tax Relief Bonds

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RBI Relief Bonds

What Are RBI Relief Bonds?

RBI Relief Bonds are instruments that are issued by the RBI, and currently carry an 8.5 per cent rate of interest, which was reduced from 9 per cent early this year. The interest is compounded half-yearly. Maturity period of RBI Bonds is five years, and interest received is tax-free in the hands of the investor.

INVESTMENT OBJECTIVES

How Suitable Are RBI Relief Bonds For An Increase In My Investment?

RBI Bonds are not very suitable if you are looking for an increase on your investment. Since RBI Bonds carry interest @ 8.5 per cent, capital appreciation is better in other safe instruments that offer a higher rate of return.

However, if safety is of paramount importance to you, you couldn’t ask for a better deal as this is the safest instrument to invest in. In case of the cumulative option, bonds issued at a face value of Rs 1,000 are redeemed at Rs 1,516.

Are RBI Relief Bonds Suitable For Regular Income?

Yes, you can opt to receive interest either on a half-yearly basis or on maturity of the instrument, along with the principal invested.

If you opt for the first option, i.e., to receive interest on a half-yearly basis, you will receive interest every six months from the date of issue of the bond up to 30th June or 31st December, whichever is earlier. Interest is paid on 1st July and 1st January each year.

To What Extent Do RBI Relief Bonds Protect Me Against Inflation?

RBI bonds do not offer any protection against inflationary pressures. As with other instruments of a similar nature, this risk has to be borne by the investor.

Can I Borrow Against RBI Relief Bonds?

Yes, you can borrow against RBI Bonds by pledging them as security in a bank.

RISK CONSIDERATIONS

How Assured Can I Be Of Getting My Full Investment Back?

RBI Bonds are issued by the country’s central bank, the Reserve Bank Of India. These are among the safest instruments available for investment, and you can be assured of getting back the full amount of your investment.

How Assured Is My Income From RBI Relief Bonds?

Your income from RBI bonds is assured. Since the issuing entity is the country’s central bank, the risk on this investment is nil. In case of the half-yearly interest payment option, the rate of return is 8.5 per cent.

In case of the Cumulative Scheme, where you receive the total interest at the end of the tenure of 5 years, the simple interest works out to 10.32 per cent at the end of the tenure.

Are There Any Risks Unique To RBI Relief Bonds?

No, there are no risks associated with your investment in RBI bonds. This is one of the safest investments you can make. Inflation and fluctuations in interest rates affect investment decisions in RBI Relief Bonds. An increase in the interest rates result in a decrease in bond prices, and vice-versa, if you want to sell them in the secondary market.

Are RBI Relief Bonds rated for their credit quality?

No, since the issuing party is the country’s central bank-the RBI-these bonds are extremely safe, and require no commercial ratings.

BUYING, SELLING, AND HOLDING

How Do I Buy RBI Relief Bonds?

Application forms for RBI Bonds are available and accepted at all branches of the Reserve Bank of India, designated branches of the State Bank of India, and designated branches of nationalised banks across the country.

What Is The Minimum Investment And The Range Of Investment for RBI Relief Bonds?

The minimum investment on RBI Relief Bonds is Rs 1,000. You can apply in multiples of Rs 1,000 thereafter. There is no prescribed upper limit to your investment in this instrument.

What Is The Duration Of RBI Relief Bonds?

The period of holding of RBI Bonds is five years from the date of issue. The bonds are repayable on the expiration of 5 years from the date of their issue.

Can RBI Relief Bonds Be Sold In The Secondary Market?

Yes, the bonds can be sold or transferred to another party. If the bonds are in the form of Bond Ledger Account (BLA), they can be transferred by execution of a Transfer Deed in the prescribed form. However, transfer shall not be deemed as complete until the name of transferee is registered as holder of the Bond in the Office of Issue.

A new BLA will be opened in the name of the transferee (whom the bond has been sold to) for the remaining period by closing the BLA of the transferor (original holder of the bond). The Bond in the form of Promissory Note (PN) will be transferable by endorsement and delivery.

What Is The Liquidity Of RBI Relief Bonds?

While RBI Bonds cannot be redeemed prematurely and must be held for the entire duration of 5 years, you can always exercise the option of selling RBI Bonds in the secondary market if you so desire.

How Is The Market Value Of RBI Relief Bonds Determined?

Market value of RBI Relief Bonds is determined on the basis of prevailing (8.5%) interest rates and market conditions.

What Is The Mode of Holding RBI Relief Bonds?

RBI Relief Bonds can be held at the credit of the holder in an account called BLA or in the form of PN. The bond can be held in demat form, i.e., a certificate of holding will be issued to the holder of bonds in the BLA.

The bonds in the form of BLA are issued and held with the public debt offices of the RBI or any branch of a scheduled bank authorised by the RBI. The bonds in the form of PN are issued only at the offices of RBI. However, bonds issued in one form will not be eligible for conversion into the other.

TAX IMPLICATIONS

Interest received on RBI Relief Bonds is completely exempt from income tax as per the provisions of the Income Tax Act, 1961. RBI Relief Bonds are also exempt from Wealth Tax. However, there is no tax benefit on the amount invested in these bonds.

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61 replies on this article “What Are RBI Relief Bonds?”

  1. amit narang says:

    my RBI bonds are misplaced by me kindly tell me how we claim from bank we purchased these bonds from SBI bank kindly help

    1. Just inform the bank and see what they are saying ?

  2. G.K.Hegde says:

    i want the details about RBI TAX FREE BONDS. I mean the interest on investment in the bond should be totally tax free. e g if one invests30lac what is the interest he will get? & this should be completly taxfree. for any assessment.

    1. Hi Sir,

      YOu need to open the query on our threads for this – http://www.jagoinvestor.com/forum/

  3. arnab kundu says:

    sir, i want to know if i purchase Rs.10,000/- for RBI Relief bond then how much will i get after maturity?
    Again, parallely i purchase 5 years NSC, then how much will i get after maturity?

    1. You will get around 6-7% interest .. so you should get close to 16-18k

  4. manish says:

    I had purchased RBI bonds for my son & daughter (both are minors). The maturity was due in 2010 but i received the cheques in 2012 only of the maturity value. I did not get the benefit for two years lapse as the money was lying with the bank.

    1. What is the reason given by the bank for non timely payment ?

  5. Girish kumar says:

    I Want to purchase RBI Tax Saving Bond & Long term Bonds. I Want to know from where I contact, Please send me Address from I can buy Bonds. plz nearess Pitam pura. or you can by post for detail , you can send details on my address. Girish Kumar, Vishakha Enclave, Pitam Pura, DELHI-110088.

    1. Girish

      Search net . you will get it

      Manish

  6. Nitin Shah says:

    NRI can invest in RBI bond

    1. Is it a new rule ?

      Manish

  7. RAJAN says:

    Hi
    Can an NRI invest in RBI Tax relief bonds with his domestic funds?

  8. sushil adlakha says:

    i am holding the 8% relief bonds 2002 purchased in 2005. kindly clarify as to the tax accrued on them is also exempt from income tax !!

  9. ramgee says:

    Does anyone know if there are any upper limits for RBI Bond investments? Thanks.

    1. Ramgee

      I dont think there is upper limit , however better ask it here https://www.jagoinvestor.com/forum/

  10. s.mohan says:

    Dear sir,
    I think RBI relief bond has been discontinued.

  11. S.Kumar says:

    If on the maturity date there is no intimation,then is it not the deficiency
    of the agency bank like SBI and should they not pay the interest up to date?
    Since the money has gone through a cheque payment with bank details,
    is at not the responsibility to intimate the bank about the maturity?

    1. Shiva

      Are you talking about the RBI bonds ? Yes, its their responsibility

      Manish

  12. k. c says:

    where i can purchase these bonds?

    1. Do google search , I dont think they are available now

      Manish

  13. PUNEET GOEL says:

    how to purchase these bonds???????

    1. Puneet

      We will have more clarity only after they come in market 🙂

      Manish

  14. himanshu gajjar says:

    please brief me, is there any non taxable RBI Bonds ?

    1. I dont think so , there can be other govt bonds .

      Manish

  15. bimal naik says:

    as per my information,Returns on RBI bonds are not tax free, and the tax is deducted at source. please tel me latest up date.
    RGDS,
    Bimal Naik

    1. Not sure of the latest update , you are true that there is no tax relief on the interest rates

      Manish

    2. Dilip says:

      Dear Bimal,
      Yes, you are right this bond is taxable.

  16. HASAN says:

    I WANT TO INVEST IN GOVTBONDS..BUT I DONT HAVEANY IDEA….PLZ SOMEONE HELPME…I M NRI.
    THANKS N REGARDS

    1. Hasan

      For now I have no much idea , will find out on this and write sometime , for now you ask on forum

      Manish

    2. Dilip says:

      Dear Hasan,
      As you are NRI you can not invest in 8% taxable RBI bond which is the only Bond live today. But you can invest in some one from your family who is resident.

  17. Soumya Nanda says:

    I want to purchase Govt Bond. Please tell me details procedure.

    1. Which Govt bond ?

      Manish

  18. sanjay says:

    great info, manish & dilip.

    1. do u guys know if NRI’s can invest in these?
    2. if so, where could they buy these?
    3. how does the risk/return compare to just buying a 5 yr indian govt bond?

    thx for the help.

    1. Sanjay

      I am not sure on this , Dilip do you have any idea ?

      Manish

    2. Dilip says:

      Dear Sanjay,

      Sorry for late reply but NRI’s could not invest in this bond.

    3. Kiran says:

      Dear sanjay ,
      Nri can invest some ministry of corporate affairs approve tip bond on high interestbut tax able .

  19. dilip bhakare says:

    if anyone like to invest in RBI bonds then u can contact on 9323448649
    as on date only 8% taxable bond is live and in near future i don’t think RBI is going to launch any other Bond which gives higher rate of interest.
    its my personal view.

    1. Great ..

      Thanks for this help .. I am sure people would like to invest in this .

      Manish

  20. Jazz says:

    If the interest on ur bond is tax free, then is there any need to deduct TDS…?

    Pls help..

    Thank u

    1. Jazz

      depends on the maturity of the bond . It might happen that in future the tax benefit is taken back , in that case it makes sense to take the TDS , What do you feel ? What bond are you talking about ?

      Manish

  21. sushil adlakha says:

    my father purchased these 8.5% relief bonds in the name of his HUF. he expired some time back.i am the only son & it is reflected in the legal heir certificate.i need the same to be transfered in my name as they mature next year.pl advise.

    1. manish says:

      I have no idea on this , you need to consult a CA .

      manish

  22. N.D.CHHABRIA says:

    I UNDERSTAND RBI IS BRINGING SEVEN PERCENT TAX FREE BONDS. WHAT IS STATUS.

    1. manish says:

      I have no idea on this .. Can you give me some old link on this ?

      Manish

  23. manish says:

    @taxworry ..
    nice info !! .. thanks for that .

    @Ashok

    We are just giving info , For Buying it , you need to contact relevent sellers 🙂

    Manish

  24. ashok hiranandani says:

    kindly provide me the soft copy of the 8% RBI bonds.

  25. taxworry says:

    Good posting. Here is one link reagrding taxation aspect of bonds http://www.taxworry.com/2008/08/is-tds-applicable-on-rbi-8-savings-bond.html

  26. Manish Chauhan says:

    @Tanishka

    I am personally not aware of other kind of bonds , may be other readers would like to put more info on this .
    btw , RBI bonds and NABARD bonds enough , why do you need other things . There are many other investment options for different time frames and different risk -appetite .

    Manish

  27. Anonymous says:

    I would like to invest some money in RBI bonds. I have heard about NABARD

    Are there any more.please send email at tanishka61@yahoo.com

  28. Anonymous says:

    I would like to know which is the official site on which i can find the list of RBI bonds.

    Can anyone help!

  29. Manish Chauhan says:

    @RAJ

    i have no idea on this , may be thats true 🙂

    Manish

  30. Anonymous says:

    Hi there, Wanna invest in the RBI Relief Bonds… chked with SBI but they INSIST that these bonds are replaced with ” Govt of India 8 % (Taxable) Bonds 2003″ Is this correct?? Also if no.. then where can I collect the forms for the RBI Relief Bonds…. Raj

  31. Krishna says:

    Yes Sridhar..seems you are right..I found a link in this regard..thanks for updating..
    here is the link I could find-
    http://www.financialexpress.com/news/rbi-relief-bond-mopup-tops-rs-10-000-crore-this-fiscal/93249/

  32. Manish Chauhan says:

    Shridhar

    You might be correct , i have no clue about the taxation part . Do you have some link which says so , i tried saerching on net but in vain .

    manish

  33. Sridhar Raghavan says:

    Manish/Krishna, I think the information on the RBI relief bonds is outdated. Post 2003, the tax exemption on interest was removed. Currently the RBI relief bonds is available as 8% (taxable) or 6.5% (tax free).

  34. Manish Chauhan says:

    Thanks Krishna for Appreciation

    Keep Visiting 🙂

    Manish

  35. Krishna says:

    Dear Manish Ji
    You are really doing a very good job by providing useful information on investment ideas and that too selflessly. I myself received useful guidance from you on my query few days back.
    RBI Bonds are for the public and I myself found it on some discussion group so nothing like taking its credit as it is not my own invention.
    Thank you & good luck for your weekend trip.
    regards

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