The Central Board of Direct Taxes (CBDT) has announced that no tax deduction at source (TDS) will be applied on interest payments made on Maharajah INR Bonds issued by the New Development Bank (NDB) starting from the tax year 2026-27. This exemption applies to eligible residents and foreign institutional investors (FIIs) holding these bonds.
- The exemption applies from the tax year 2026-27 and onwards.
- It covers eligible residents and foreign institutional investors as defined under the Income-tax Act, 2025.
- The bonds are rupee-denominated debt instruments issued by the New Development Bank.
- The notification was issued under Section 400(1) of the Income-tax Act, 2025.
- The exemption supports NDB's plan to expand local-currency financing in India.
What are Maharajah INR Bonds?
Maharajah INR Bonds are debt securities denominated in Indian rupees issued by the New Development Bank. The bank plans to issue these bonds in the Indian domestic market to raise funds from investors. Interest payments on these bonds will be made according to the terms set by the bank.
Who is eligible for the TDS exemption?
The exemption from TDS on interest payments applies to eligible residents and foreign institutional investors holding the Maharajah INR Bonds. These categories are defined under Sections 210(6) and 393 of the Income-tax Act, 2025.
Why has the CBDT issued this notification?
The CBDT issued Notification No. 136/2026 on October 19, 2026, to clarify the tax treatment of interest payments on these bonds. The notification ensures that no TDS will be deducted on qualifying interest payments made by the NDB to eligible bondholders starting from the 2026-27 tax year.
How does this move support the New Development Bank's plans?
The New Development Bank aims to expand its local-currency financing operations by issuing rupee-denominated bonds in India. This initiative is supported by the Government of India and the Reserve Bank of India (RBI). The TDS exemption is expected to attract more investors, including international ones, by reducing tax-related costs and mitigating currency risks for Indian issuers.
What details are not covered by the notification?
The CBDT notification specifically addresses the tax deduction at source on interest payments. It does not provide information about the size, interest rate, or maturity period of the Maharajah INR Bonds.
When did the notification come into effect?
The notification came into force on the date of its publication in the Official Gazette, which was October 19, 2026.
Frequently Asked Questions
Q: Will all investors in Maharajah INR Bonds be exempt from TDS on interest?
A: No, only eligible residents and foreign institutional investors as defined under the Income-tax Act, 2025, qualify for the exemption.
Q: Does the exemption apply to the principal amount of the bonds?
A: No, the exemption applies only to the interest payments made on the bonds.
Q: Is this exemption permanent?
A: The exemption applies from the tax year 2026-27 onwards, but any future changes would depend on government notifications.
This notification was issued by Rajendra Kumar Meena, Under Secretary, Ministry of Finance, under Notification No. 136/2026.
