There are a few differences between tax free bonds and tax saving bonds. The major differences between tax free bonds and tax savings bonds are:

• In tax-free bonds, the interest income earned from investing in them are free from taxation as per the Section 10 of the Indian Income Tax Act, 1961. But, the tax saving bonds don't offer this benefit. In a tax saving bond, only the initial investment is free from tax.
• Compared to tax saving bonds, tax free bonds offer slightly higher rates of interest, and any retail investors can invest in tax free bonds up to Rs.5 lakhs.
• Tax savings bonds are investment instruments for individual investors who get tax exemption on investing a maximum amount of Rs. 20,000 under Section 80CCF of the Indian Income Tax Act. The same is not applicable for tax free bonds which are absolutely free. Given that you can invest a maximum of Rs. 20,000, tax-saving bonds may not serve you as the investment tool for investment. You would not receive regular cash flows by investing in tax saving bonds.
• In tax free bonds, you need to invest your money for a particular lock-in period. But, in tax saving bonds, you don’t have to do so. The tax saving bonds offers you a buyback clause at the end of each 5 or 7 years which enables you to withdraw your investments. However, tax saving bonds are ideal for those people who have low risk appetite.