What it is
Floating Rate Savings Bonds, 2020 (Taxable) are Government of India bonds available to eligible investors. RBI states that the bonds are interest-bearing, non-tradeable and repayable after seven years. The coupon resets half-yearly and is linked to the prevailing NSC rate plus a spread.
What can go wrong
- The main practical risk is liquidity: the bond is non-tradeable and the money is locked for a long period, subject to specified premature-redemption rules.
- Because the coupon floats, future income can move up or down when the reference rate changes.
- Inflation can reduce the real purchasing power of fixed-income cash flows.
Tax in India
- Interest is explicitly taxable and is generally included in normal taxable income at the investor’s applicable rate.
- TDS can apply under the prevailing rules; final tax depends on the investor’s total income.
- Because the bond is generally redeemed at par and not traded, the primary tax issue for most retail investors is taxation of periodic interest.
What the example below measures
The example below focuses on the tax increase caused by this instrument’s return for people starting with ₹6 lakh, ₹12 lakh or ₹50 lakh of normal taxable income. It does not treat TDS as final tax.
FRSB tax: what happens to a ₹6L, ₹12L or ₹50L income person?
This is an instrument-specific illustration, not the same generic tax chart repeated on every page.
₹6,00,000
Income becomes ₹6,40,000. Because normal-rate total income is still within ₹12 lakh, the available resident-individual rebate can keep final tax at nil in this simplified example.
₹12,00,000
Income becomes ₹12,40,000. ₹12 lakh is exactly the rebate cut-off. Marginal relief limits the sudden tax jump; 4% cess is then added. This is a threshold effect, not a normal 104% tax rate.
₹50,00,000
Income becomes ₹50,40,000. ₹50 lakh is exactly the surcharge threshold. Marginal relief reduces the surcharge jump just above ₹50 lakh; 4% cess is then added.
Tax & bond words — explained simply
No jargon without meaning. These are the terms used on this FRSB page.
Official references
Use the current issuer document and current law before investing. These links are starting points for verification.
Educational illustration, not tax or investment advice. Tax depends on residential status, tax regime, age, deductions, special-rate income, acquisition price, holding period, listing status and changes in law. “Fixed income” does not mean every instrument is guaranteed or liquid.