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Tax Saving Bonds

Tax-saving bonds are great instruments offered by the government to help people save tax. These are special documents which offer tax benefits to the owners as permitted under the Income Tax Act. These bond have a lock-in period of 6 years.

India, the largest democracy in the world runs on the tax paid by millions of its citizens, which each Rupee paid as tax helping the country grow and prosper.While for some tax is just another source of expenditure, for others it could have a huge bearing on their life. The government, on its part has a number of schemes to ensure that taxes don’t overburden citizens, with tax savings bonds being one of the popular means to save tax.

What are Tax Saving Bonds?

A bond, in simple terms is a document which promises the holder certain rewards and benefits in return for an investment. It consists of an Issuer, the agency which provides these bonds and an owner, the person under whose name such bonds exists. Tax Saving Bonds, as the name indicates are bonds which help people save tax.

These bonds offer certain special tax benefits to owners, helping them save a certain portion of their overall tax. Individuals can purchase these bonds and earn a certain interest on them, with a special provision in the Income Tax Act providing tax benefits on investments. Tax Saving Bonds come with a minimum lock-in period of 6 years, making them mid to long term investment tools.

Key Takeaways

  • The interest earned on fixed income investments like bonds and notes is often subject to income tax.

  • There are different taxation rules for government, corporate, and municipal bonds.

  • While IRS tax form 1099-INT offers bondholders straightforward guidelines for declaring tax on income generated from the stated rate of interest, there are often complex factors that fixed income investors must heed.