How Are Bonds Taxed?
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Investors often consider tax
implications before diving into
investments. This article
explores the taxation of bonds,
covering aspects such as
interest and capital gains,
providing a comprehensive
understanding of the subject.
What is interest?
Interest, a fixed payment on the principal
investment, is received based on investor
preferences—monthly, quarterly, semi-annually,
or annually.
What is a capital gain?
• Capital gain arises when a bond,
bought at face value, is sold at a better
price. Two types:
• Long-term capital gain (LTCG): Held for
more than 12 months (or 36 months for
unlisted bonds).
• Short-term capital gain (STCG): Held for
less than 12 months (or less than 36
months for unlisted bonds).
How are interest and capital gains taxed?
Interest is considered income and taxed
per individual slab rates. Capital gains:
• LTCG (listed bonds): Taxed at 10%
without indexation.
• LTCG (unlisted bonds): Taxed at 20%
without indexation.
• STCG (both listed and unlisted bonds):
Taxed per applicable slab rates.
Other types of bonds
• Tax-free bonds: Interest is tax-free, but
capital gains are taxable.
• Tax-saving bonds: Exemption on LTCG
held till maturity; interest taxed as per
slab.
• Zero coupon bonds: No interest, LTCG
and STCG applicable.
• Market-linked bonds: Interest and
capital gains taxed based on
performance.
Corporate Fixed Deposit and Recent Update
• Recent amendment: TDS on interest
income for listed corporate bonds (> Rs
5,000).
• Exemption for government and
sovereign bonds.
• Form 15G (below 60) and 15H (above
60) for TDS claim if tax liability is nil.
The Wrap
Understanding tax implications
allows informed bond investments.
Different bonds offer tax exemptions
based on needs. Bonds provide
higher interest rates compared to
traditional FDs with lower risk.
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