Inflation Indexed National Saving Securities – Cumulative (IINSS-C) -Notification and FAQ
The issue of India's Inflation Indexed National Savings Securities-Cumulative (IINSS-C) for retail investors will open for subscription on December 23, 2013 and close on December 31, 2013. The subscription can be closed earlier than December 31, 2013 with prior notice.
It may be recalled that the Reserve Bank of India, in consultation with Government of India, on November 29, 2013 announced issuance of Government of India's Inflation Indexed National Savings Securities-Cumulative (IINSS-C) for retail investors.
Interest rate on these securities would be linked to final combined Consumer Price Index [CPI (Base: 2010=100)]. Interest rate would comprise two parts, i.e., fixed rate (1.5% per annum) and inflation rate based on CPI and the same will be compounded in the principal on half-yearly basis and paid at the time of maturity. The final combined CPI will be used with a lag of three months, i.e., final combined CPI for September 2013 will be used as reference CPI for all days of December 2013.
Early redemptions will be allowed after one year from the date of issue for senior citizens (i.e., 65 years and above of age) and 3 years for all others, subject to penalty charges at the rate of 50% of the last coupon payable for early redemption. Early redemptions, however, can be made only on coupon dates.
The eligible investors would include individuals, Hindu Undivided Family, Charitable Institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956).
As distribution/ sale of IINSS-C would be through banks, eligible investors may approach the branches of State Bank of India, Associate Banks, Nationalised Banks, three private sector banks (viz. HDFC Bank Ltd., ICICI Bank Ltd. and Axis Bank Ltd.) and Stock Holding Corporation of India Ltd. during working hours.
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Inflation Indexed National Savings Securities- Cumulative, 2013
RBI 2013-14/411
DGBA.CDD.No. 3688/13.01.999/2013-2014
December 19, 2013
The Chairman Managing Director
Head Office (Government Accounts Department)
State Bank of India Associate Banks
All Nationalised Banks
ICICI Bank Ltd., HDFC Bank Ltd, Axis Bank Ltd., and
Stock Holding Corporation of India Ltd (SHCIL).
Dear Sir/Madam,
Inflation Indexed National Savings Securities- Cumulative, 2013
It has been decided by the Government of India, as per their Notification F.No. 4(16) W&M/2012 dated December 19, 2013, to issue Inflation Indexed National Savings Securities- Cumulative, 2013 ("the Bonds") with effect from December 23, 2013 to December 31, 2013. The Government of India reserves the right to close the issue earlier than December 31, 2013. The terms and condition of the issue of the Bonds shall be as follows:
2. Eligibility for Investment
The Bonds may be held by:-
i) an individual, not being a Non-Resident Indian-
- in his or her individual capacity, or
- in individual capacity on joint basis, or
- in individual capacity on anyone or survivor basis, or
- on behalf of a minor as father/mother/legal guardian.
ii) a Hindu Undivided Family (HUF)
iii) (a) 'Charitable Institution' to mean a Company registered under Section 25 of the Indian Companies Act 1956, or
(b) an institution which has obtained a Certificate of Registration as a charitable institution in accordance with a law in force; or
(c) any institution which has obtained a certificate from Income Tax Authority for the purposes of Section 80G of the Income Tax Act, 1961.
iv) 'University' means a university established or incorporated by a Central, State or Provincial Act, and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a university for the purposes of that Act.
3. Limit of Investment
Minimum limit for investment in the bonds is `5,000/- and maximum limit for investment is `5,00,000/- per applicant per annum.
4. Tax Treatment
Income Tax: Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bonds holder.
5. Issue Price
i) The Bonds will be issued at par, i.e. at 100.00 per cent.
ii) The Bonds will be issued for a minimum amount of `5,000/- (face value) and in multiples thereof. Accordingly, the issue price will be `5,000/- for every `5,000/-(Nominal).
6. Subscription
Subscription to the Bonds will be in the form of Cash/Drafts/Cheques/online through internet banking. Cheques or drafts should be drawn in favour of the bank (Receiving Office), specified in paragraph 10 below and payable at the place where the applications are tendered.
7. Date of Issue
The date of issue of the Bonds in the form of Bonds Ledger Account will be opened (issued) from the date of receipt of funds/realisation of draft/cheque.
8. Form
i) The Bonds will be issued only in the form of Bonds Ledger Account and may be held at the credit of the holder in an account called Bonds Ledger Account (BLA).
ii) The Bonds will be issued in the form of Bonds Ledger Account and held with Reserve Bank of India. A certificate of holding as specified in 'Form I' (attached) will be issued to the holder of Bonds in Bonds Ledger Account.
9.Applications
i) Applications for the Bonds may be made in the application format attached or in any other form as near as thereto stating clearly the amount and the full name and address of the applicant.
ii) Applications should be accompanied by the necessary payment in the form of cash/drafts/cheques/online through internet banking as indicated in paragraph 6 above.
Note:- The authorised banks are responsible to ensure compliance with the applicable KYC norms. The application form and the requisite documentation are to be retained by the authorised banks for record and future reference.
10. Receiving Offices
Applications for the Bonds in the form of Bonds Ledger Account will be received at:
(a) Branches of State Bank of India, Associate Banks, Nationalised Banks, three private sector banks (i.e. HDFC Bank Ltd., ICICI Bank Ltd., AXIS Bank Ltd.) and SHCIL during their working hours.
(b) Any other bank or number of branches of the banks and SHCIL where the applications will be received as specified by the Reserve Bank of India in this behalf from time to time.
11. Nomination
- A sole holder or a sole surviving holder of a Bond(s), being an individual, may nominate in the Form annexed to this notification or as near thereto as may be, one or more persons who shall be entitled to the Bonds and the payment thereon in the event of his/her death.
- Where any amount is payable to two or more nominees and either or any of them dies before such payment becomes due, the title to the Bonds shall rest in the surviving nominee or nominees and the amount being due thereon shall be paid accordingly. In the event of the nominee or nominees predeceasing the holder, the holder may make a fresh nomination.
- No nomination shall be made in respect of the Bonds issued in the name of a minor.
- A nomination made by a holder of Bonds may be varied by a fresh nomination as near thereto as may be, or may be cancelled by giving notice in writing to the Receiving Office in the Form annexed to the notification.
- Every nomination and every cancellation or variation shall be registered at the Reserve Bank of India through the authorised bank and shall be effective from the date of such registration.
- If the nominee is a minor, the holder of Bonds may appoint any person to receive the Bonds/amount due in the event of his/her death during the minority of the nominee.
12. Transferability
The Bonds in the form of Bonds Ledger Account shall be transferable to nominee(s) on death of holder (only individual/s).
13. Interest
The Bonds will bear interest at the rate of 1.5% (fixed rate) per annum + inflation rate calculated with respect to final combined Consumer Price Index [(CPI) Base; 2010 = 100]. Final combined CPI will be used with a lag of three months to calculate incremental inflation rate (i.e. final combined CPI for September would be used as reference CPI for all days of December). Interest will be compounded with half-yearly rests and will be payable on maturity along with the principal.
14. Advances/Tradability against Bonds
The Bonds shall not be tradable in the secondary market. The Bonds shall be eligible as collateral for loan from banks, Financial Institutions and Non-Banking Financial Company (NBFC). The lien to that effect will be marked in the depository (RBI) by the authorised banks.
15. Repayment
- The Bonds shall be repayable on the expiration of 10 (ten) years from the date of issue. The investor will be advised by the authorised bank one month before maturity regarding the ensuing maturity of Bonds advising them to provide a Letter of Acquaintance, confirming the NEFT/NECS account details, etc. to the authorised bank. If everything is in order, the investor will be paid within maximum five days of the maturity.
- Early repayment/redemption before the maturity date is allowed after one year of holding from the date of issue for senior citizens, i.e. 65 and above years of age and for all others, after 3 (three) years of holding, subject to the penalty charges at the rate of 50% of the last coupon payable. Early redemption to be allowed only on coupon date.
16. Handling charges
Handling charges at the rate of `1.00 (Rupee one only) per `100.00 will be paid to the authorised banks on the subscription received by them from investors.
Yours faithfully,
(Sangeeta Lalwani)
General Manager
Encls.: As above.
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FAQ on Inflation Indexed National Saving Securities – Cumulative (IINSS-C)
1. Who is eligible to invest in the Inflation Indexed National Saving Securities-Cumulative (IINSS-C)?
- Only retail investors would be eligible to invest in these securities. The retail investors would include individuals, Hindu Undivided Family (HUF), charitable institutions registered under section 25 of the Indian Companies Act and Universities incorporated by Central, State or Provincial Act or declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956).
2. What is the interest rate on these securities?
- There will be two parts in the interest rate. One, fixed rate of 1.5% per annum and second, inflation rate.
- For example, if inflation rate during the six months is 5%, then interest rate for this six months would be 5.75% (i.e. fixed rate -0.75% and inflation rate -5%).
3. Is there any floor as inflation may turn into deflation at times?
- Yes, fixed rate of 1.5% would act as a floor, which means that 1.5% per annum interest rate is guaranteed if there is deflation.
- For example, if inflation rate is (-) 5%, then interest rate should be (-) 3.5% by simple calculation. But in such case, negative inflation will not be recognised and investors would get fixed rate of 1.5%.
4. When do I get interest?
- Interest rate will be accrued and compounded in the principal on half-yearly basis and paid along with principal at the time redemption.
5. What will I get on redemption?
- On redemption, investors will get principal and compounded interest rate.
6. What is the inflation index to which inflation rate will be linked?
- Inflation rate will be based on the final combined Consumer Price Index [(CPI) base: 2010=100].
- The final combined CPI will be used as reference CPI with a lag of three months. For example, the final combined CPI for September 2013 will be used as reference CPI for whole of December 2013.
7. What will be the process of investing?
- Investors can invest through the authorised banks and Stock Holding Corporation of India (SHCIL).
- They will fill an application form and submit the same along with other documents and payment to the bank.
- On receipt of money, the bank will register the investor on the RBI's web-based platform (E-Kuber) and on validation, generate the Certificate of Holding.
8. What will be the form of these securities?
- These securities will be issued in the form of Bonds Ledger Account (BLA) The securities in the form of BLA will be issued and held with RBI and thus, RBI will act as central depository.
- A certificate of holding will be issued to the holder of Bonds in BLA.
9. Which are the authorised banks?
- The authorised banks are SBI Associates, Nationalised Banks, HDFC Bank, ICICI Bank, and Axis Bank.
10. Should the customer apply through the bank in which he/she has an account?
- Customers can approach any of the authorised banks, including SHCIL for such investment irrespective of whether they hold an account or not with that bank.
11. Who will provide the other customer services to the investors after issuance of securities?
- The banks through which these securities have been purchased will provide other customer services.
- Investors can approach the banks for other services such as change of address, early redemption, nomination, lien marking, etc.
12. Whether joint holding will be allowed?
- Yes, joint holding will be allowed.
13. What is the minimum and maximum limit for investment?
- The minimum investment limit is Rs. 5,000/- (five thousand).
- The maximum limit is Rs. 500,000/- (five lakh) per applicant per annum.
14. Whether premature redemption is allowed?
- Yes premature redemption is allowed.
- For senior citizens above 65 years, the premature redemption is allowed after one year. For others, it is allowed after 3 years.
- Penalty at the rate of half of the last payable coupon will be charged from the investors. For example, if last payable coupon is Rs. 1,000/-, then Rs. 500 would be charged as penalty.
15. How do I redeem these securities?
- In case of redemption prematurely before the maturity date, investors can approach the concerned bank few days before the coupon date and apply.
- In case of redemption on maturity, the investor will be advised one month before maturity regarding the ensuing maturity of the bond advising them to provide a Letter of Acquaintance, confirming the NEFT account details, etc. If everything is in order the investor has to be paid within maximum five days of the maturity (to take care of any payment in the form of physical instrument).
16. Whether these securities transferable?
- Transferability is allowed to the nominee(s) only for individual investors on death of holder.
- Transferability is not allowed for other investors
17. Can I use these securities as collateral for loans?
- Yes, these securities are eligible to be used as collateral for loans from banks, financial Institutions and Non Banking Financial Companies, (NBFC).
18. What are the tax implications?
- Existing taxation applicable to Government of India securities issued as part of the market borrowing will be applicable to these securities.
19. Whether TDS will be applicable?
- Existing taxation applicable to Government of India securities will be applicable to these securities.
- Sub-section (iv) of the Section 193 of the Income Tax Act, 1961 stipulates that no tax shall be deducted from any interest payable on any security of the Central Government or a State Government, provided that nothing contained in this clause shall apply to the interest exceeding rupees ten thousand payable on 8% Savings (Taxable) Bonds, 2003 during the financial year.
- As per the above Section, TDS shall not be deducted from any interest payable on IINSS-C, until and unless notified by the Government of India otherwise.
20. Who will do the KYC?
- As customers will be owned by the banks, KYC will also be done by the banks.
21. When will customers be issued securities?
- The customers should be issued the securities after receiving clear money. After receiving clear money, banks should register the customer on CBS and generate Certificate of Holding.
22. Where can investors get the application form?
- The application form can be downloaded from the RBI's website. However, banks shall also get forms printed and made available to the investors.
23. An example of cash flows/ compounding of principal for illustration purpose is as under:
| Fixed rate 1.5% per annum |
| Issue/Coupon/maturity date | Fixed rate | CPI | Inflation rate | Interest rate (Compounding rate) | Principal |
| I | II | III | IV | V=II+IV | VI=VI*V |
| 25-Dec-13 |
| 150 |
|
| 5000 |
| 25-Jun-14 | 0.75 | 160 | 6.67 | 7.4 | 5371 |
| 25-Dec-14 | 0.75 | 166 | 3.75 | 4.5 | 5613 |
| 25-Jun-15 | 0.75 | 175 | 5.42 | 6.2 | 5959 |
| 25-Dec-15 | 0.75 | 185 | 5.71 | 6.5 | 6344 |
| 25-Jun-16 | 0.75 | 190 | 2.70 | 3.5 | 6563 |
| 25-Dec-16 | 0.75 | 200 | 5.26 | 6.0 | 6958 |
| 25-Jun-17 | 0.75 | 210 | 5.00 | 5.8 | 7358 |
| 25-Dec-17 | 0.75 | 218 | 3.81 | 4.6 | 7693 |
| 25-Jun-18 | 0.75 | 228 | 4.59 | 5.3 | 8104 |
| 25-Dec-18 | 0.75 | 235 | 3.07 | 3.8 | 8414 |
| 25-Jun-19 | 0.75 | 246 | 4.68 | 5.4 | 8870 |
| 25-Dec-19 | 0.75 | 255 | 3.66 | 4.4 | 9262 |
| 25-Jun-20 | 0.75 | 265 | 3.92 | 4.7 | 9694 |
| 25-Dec-20 | 0.75 | 280 | 5.66 | 6.4 | 10316 |
| 25-Jun-21 | 0.75 | 290 | 3.57 | 4.3 | 10761 |
| 25-Dec-21 | 0.75 | 305 | 5.17 | 5.9 | 11399 |
| 25-Jun-22 | 0.75 | 316 | 3.61 | 4.4 | 11895 |
| 25-Dec-22 | 0.75 | 330 | 4.43 | 5.2 | 12512 |
| 25-Jun-23 | 0.75 | 340 | 3.03 | 3.8 | 12985 |
| 25-Dec-23 | 0.75 | 355 | 4.41 | 5.2 | 13655 |
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