Tax and Filing

Yes. Interest income earned from bonds, SDIs (Securitised Debt Instruments), and corporate FDs is fully taxable in your hands. It is added to your total income and taxed at the income tax slab rate applicable to you.

Think of it like interest from a bank fixed deposit — it is taxed the same way.

The income tax treatment is the same — interest is added to your total income and taxed at your slab rate. However, the TDS (tax deducted at source) rules are as follows:

They are the same thing. The interest paid by a bond issuer is called a coupon. When the issuer pays your coupon (periodically or at maturity), that amount is your interest income and is taxable at your slab rate.

The coupon rate is the annual interest rate stated on the bond. For example, a bond with a face value of INR 1,000 and a 9% coupon pays you INR 90 per year as interest income.

Each issuer is treated independently for TDS purposes. TDS of 10% is deducted by each issuer separately when interest paid to you from that issuer crosses INR 10,000 in a financial year.

So if you invest in 5 different bonds across 5 companies, each company tracks your interest independently and deducts TDS accordingly. You will receive Form 16A /131 from each issuer, which you can use when filing your ITR.

TDS stands for Tax Deducted at Source. It means the issuer (the company that borrowed your money via bonds or FDs) deducts a portion of your interest before paying it to you, and deposits that amount directly with the Income Tax Department on your behalf.

It is essentially the government collecting taxes in advance, so you do not have to pay a large tax bill all at once at the end of the year.

The standard TDS rate on interest from bonds, SDIs and corporate FDs is 10%, provided you have submitted your PAN to the issuer.

If you have not submitted your PAN, TDS is deducted at a higher rate of 20%.

TDS is deducted when your total interest income from a single issuer crosses INR 10,000 for Bonds and SDIs, INR 40,000 for Bank FDs and INR 5,000 for Corporate FDs in a financial year. Below this threshold, no TDS is deducted.

For example, if your bond pays INR 400 per month in interest, your annual interest from that issuer is INR 4,800. Since this is below INR 10,000, no TDS will be deducted. But if it is INR 1,000 per month (INR 12,000 annually), TDS of 10% will be deducted.

Yes — the issuer calculates the actual interest paid or accrued to you during the financial year. If that amount crosses INR 10,000 (even for a partial year), TDS will be deducted.

For example, if you invest in a bond in January 2027 and it pays INR 2,500 of interest before March 2027, TDS will not be deducted for that year. But if the interest paid in that partial period exceeds INR 10,000, TDS will apply.

Yes — if you are eligible. You can submit a TDS exemption declaration to the issuer, which tells them that your total income is below the taxable limit and no tax should be deducted.

Under the new Income Tax framework (from April 2026), the applicable forms are Form 121 and Form 128, which replace the earlier Forms 15G/15H and Form 13.

• Form 121 (for bonds) and Form 128 (for SDIs) are valid for one tax year and must be renewed annually.
• You must be an Indian Resident Individual or HUF to be eligible.
• Your tax liability for the tax year must be nil.

Do not worry — TDS deducted is not lost. It is credited to your account with the Income Tax Department. When you file your Income Tax Return (ITR), you can claim a refund of the excess TDS deducted.

You claim the refund through your annual Income Tax Return (ITR). Here is how it works in simple steps:

Step 1: Collect your Form 16A/131 from each issuer (this shows the TDS deducted on your interest income).

Step 2: Check your Form 26AS/168 or Annual Information Statement (AIS) on the Income Tax e-filing portal — this shows all TDS credits linked to your PAN.

Step 3: File your ITR, reporting your total income including interest from bonds, FDs, and SDIs.

Step 4: The tax calculated on your total income will be compared with the TDS already deducted. If TDS > tax owed, the difference is your refund.

Step 5: The Income Tax Department processes the refund and credits it directly to your registered bank account.

You can check TDS credits in two places:

• Form 26AS / Form 168: Available on the Income Tax e-filing portal (incometax.gov.in). It shows all TDS deducted on your PAN.
• Annual Information Statement (AIS): A more detailed statement on the same portal showing all financial transactions, including interest income and TDS.
• Form 16A / Form 131: Issued by each issuer for the TDS they deducted. You should receive this from the bond/FD issuer.

After you file your ITR and it is processed by the Income Tax Department, refunds are typically credited within 4 to 8 weeks. In some cases it may take longer, depending on the volume of returns being processed.

You can track the status of your refund on the Income Tax e-filing portal under My Account > Refund/Demand Status.

Yes. If you sell a bond or SDI before maturity and make a profit (i.e., you receive more than what you paid for it), that profit is a capital gain and is taxable.

The tax rate depends on how long you held the bond before selling:

Yes — a capital loss on a bond sale can be set off against capital gains from other investments in the same year:

• Short-term capital loss can be set off against both short-term and long-term capital gains.
• Long-term capital loss can only be set off against long-term capital gains.

If you cannot fully offset the loss in the same year, it can be carried forward for up to 8 years and set off against future capital gains.

No — the return of your principal (the face value of the bond) at maturity is not taxable. You are simply getting back the money you originally invested.

However, if you purchased the bond in the secondary market at a price lower than its face value, the difference between what you receive at maturity and what you paid for it may be treated as capital gain. Your tax advisor can help calculate this accurately.

Zero-Coupon Bonds do not pay regular interest. Instead, they are issued at a discount and redeemed at their full face value at maturity. The difference (your gain) is treated as interest income — not capital gains — and is taxed at your applicable slab rate.

It depends on your method of accounting:

• Cash basis: Most individual investors report interest when it is actually received. If the issuer has not paid the interest yet, it is not taxable in the current year.
• Accrual basis: If you follow accrual accounting, interest is reported as it accrues, even if not yet received. This is more commonly applicable to businesses.

For most retail investors, you will pay tax on interest income in the year it is received. However, your ITR form (AIS / Form 26AS) may show accrued interest reported by issuers, which you should reconcile carefully.