Tax Treatment of Maturity of 6.5 %RBI Saving Bonds

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This query is : Resolved

Siddharth Mittal (Querist)

28 August 2010 Sir,

Please clarify whether the RBI 6.5 % Saving Bonds are exempt from tax on the proceeds received on maturity. (Interest is Exempt but what about the principal amount??)
If so, then please let me know the section under which these are exempt.
If not, then how will these be treated. (as long term/ will be included in the income)

Thanks

CA PRAMOD SARAOGI

CA PRAMOD SARAOGI (Expert)

29 August 2010 Maturity proceeds of RBI 6.5% Saving Bonds are not taxable. How could it be made taxable when it is not covered under EET mode like NSS . The maturity proceeds received would not have any element of profit in it . It is only the principle amount that the investor would receive.

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Siddharth Mittal

Siddharth Mittal (Querist)

29 August 2010 But Sir, is there any thing mentioned anywhere regarding this.
As everywhere it is mentioned that the interest earned is tax free "However, there is no tax benefit on the amount invested in these bonds."

Please clarify with some proof of any link or reference to any section of act.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

26 July 2025 Sure! Here's the **tax treatment of RBI 6.5% Savings Bonds** with clarity and references:

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## 🔹 Tax Treatment of RBI 6.5% Savings Bonds (as of 2010)

### 1. **Interest Income**

* The **interest on these bonds is fully exempt from tax** under **Section 10(15)(iv)(h)** of the Income Tax Act.
* This means you **do not pay tax on interest earned annually**.

### 2. **Principal Amount**

* The **principal amount invested is not deductible** under any section (like Section 80C).
* On **maturity**, the **principal amount received is also exempt from tax** because it is just your original capital return, not income or capital gains.
* There is **no capital gain element** on maturity because these are **non-transferable** bonds and not sold in the market.

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## 📜 Legal & Official Reference:

* Section **10(15)(iv)(h)** exempts interest on Government securities, which includes **RBI Savings Bonds**.
* Since the bonds are **non-transferable and redeemed only at maturity**, **no capital gains tax applies**.
* **Principal received is not treated as income** since it is a return of your investment, not a profit.

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## ✅ Summary Table:

| Component | Tax Treatment | Section/Explanation |
| ---------------- | ------------------------------------------ | -------------------------------------- |
| Interest Income | Fully exempt from tax | Section 10(15)(iv)(h) |
| Principal Amount | Return of capital; not taxable on maturity | Not income; no deduction on investment |
| Capital Gains | Not applicable (non-transferable bonds) | No sale or transfer happens |

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## 📝 Additional Notes:

* These bonds are **not eligible for deduction under Section 80C**.
* Since the bonds are issued by the government, they are considered safe and tax-friendly instruments.
* Unlike NSS (National Savings Scheme) where the investment is deductible but maturity is taxable, here **no tax deduction but also no tax on maturity**.

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If you want, I can help you draft a letter or provide links to official government notifications and Income Tax Department clarifications. Would you like that?

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