NDB Maharaja Bonds get TDS exemption: How it affects your interest income | Personal Finance

The government has removed tax deducted at source (TDS) on interest payments from the New Development Bank’s (NDB’s) Maharaja Rupee Bonds from the 2026-27 tax year.

 

It allows eligible investors to receive their interest without an upfront tax deduction. However, the relief does not make the interest income tax-free.

 

The Central Board of Direct Taxes (CBDT), under the Ministry of Finance, notified the exemption on October 19, 2026. It covers eligible resident investors and foreign institutional investors (FIIs) holding these bonds, from the 2026-27 tax year onwards.

 

For investors, the immediate benefit is improved cash flow. They will receive the full interest payment instead of having a portion deducted at source. However, resident investors must still report the interest as taxable income in their income tax returns and pay tax at the applicable rates.

  

What are Maharaja INR Bonds?

 

Maharaja INR Bonds are rupee-denominated bonds issued in the domestic market by the New Development Bank, a multilateral development bank established by the BRICS countries — Brazil, Russia, India, China and South Africa.

 

The bonds differ from Masala Bonds, which are rupee-denominated bonds issued in overseas markets. Maharaja Bonds are issued within India and are denominated in Indian rupees.

 

The proposed fundraising programme is also significant. In an August 27, 2026, circular, the Insurance Regulatory and Development Authority of India (IRDAI) referred to NDB’s proposal to raise Rs 25,000 crore through these bonds over five years.

 

The proceeds are intended for general corporate purposes, including financing or onward lending for sustainable development, infrastructure, and green and social projects in India.

 

What does the TDS exemption change?

 

The CBDT notification specifies that no TDS will be deducted on the interest payments covered by the relevant provisions of the Income-tax Act, 2025, for the 2026-27 tax year and subsequent tax years.

 

The exemption covers the interest payments specified under Section 393(1), Table serial number 5, or Section 393(2), Table serial number 17, as applicable.

 

Earlier, an applicable TDS deduction could reduce the amount credited to an investor when interest was paid. Under the exemption, eligible holders will receive the full interest payment without this deduction.

 

This could also reduce the need to claim a refund of TDS through an income tax return when the amount deducted exceeds an investor’s final tax liability.

 

However, the exemption is limited to the deduction mechanism. It does not, by itself, remove the investor’s obligation to pay income tax on the interest.

 

Is the interest income tax-free?

 

No. Investors should distinguish between TDS and their final income tax liability.

 

TDS is an advance collection of tax. The amount deducted at source is adjusted against the taxpayer’s final liability when the income tax return is processed. The absence of TDS does not automatically exempt the underlying income from tax.

 

For resident investors, the interest income will continue to be taxable under the applicable provisions of the Income-tax Act, 2025. The final tax payable will depend on the investor’s overall taxable income and applicable tax regime.

 

Investors should therefore:

 

•       Include the interest income in their income tax returns, as applicable.

 

•       Calculate their final tax liability after considering their total taxable income.

 

•       Pay any tax due through the applicable advance tax or self-assessment tax provisions.

 

Receiving the entire interest payment upfront should not be mistaken for earning tax-free returns.

 

What reporting requirements apply?

 

The exemption also places an information-reporting obligation on NDB. Under the notification, the bank must furnish the information required under Schedule VII, Table serial number 49, of the Income-tax Act, 2025, along with the applicable provisions of the Income-tax Rules, 2026.

 

The notification takes effect from the date of its publication in the Official Gazette.

 

The change removes TDS on eligible interest payments but does not eliminate the need to account for that income while filing tax returns. Investors should assess the bonds on their interest rate, maturity, credit risk and overall suitability rather than treating the TDS exemption as an additional tax-free return.