The government will soon slash interest rates on tax-free Savings Bond by 0.5 per cent to 6.5 per cent.
RBI Relief Bonds, bearing 8.0 per cent coupon rate and so far tax-free in nature, would be made taxable next fiscal even though the rate of interest would be kept untouched, finance ministry sources said on Monday.
The effective return on the relief bonds would be over 9.2 per cent, sources said.
The notification on Savings Bond is expected in 2-3 days, sources said.
The Savings Bond was introduced last fiscal providing anattractive return. The fresh subscription was, however, stopped after the Budget as the government intended to "reset" the coupon rate.
The move to realign interest rates on the bonds follows Finance Minister Jaswant Singh's announcement of a one per cent cut in small savings and PPF rates in the Budget.
Sources said the rate of interest on savings bond is slated to be reduced by only 0.5 per cent as the rate of return is lower at 7.0 per cent.
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