Strengthen the bond between you and your wealth
What is a tax-free bond?
  • Security issued by a company, financial institution or the government

  • Offers regular or fixed payment of interest in return for borrowed money for a specified period

Why are these bonds called "tax-free"?
  • You don’t have to pay any tax on the interest earned from these bonds (Income Tax Act, 1961)

Who provides tax-free bonds?
  • Government-backed entities

  • Public undertakings, such as IRFC, PFC, NHAI, HUDCO, REC, NTPC, NHPC, Indian Renewable Energy Development Agency (IREDA)

How do tax-free bonds work?
  • Tenure: You can invest for up to 10, 15, or 20 years – it’s your choice.

  • Liquidity: You can easily sell your bonds any time before maturity.

  • Safe investment option:You can be sure of receiving the promised regular interest.

  • Tax-exempted:You are not required to pay any taxes on the interest you earn.

  • Demat account is optional:You can hold these bonds in physical form, too.

Let’s look at an example to understand this better.
Amount invested
(10 Years)
Rate of interest
per year
Total amount of interest per yearInterest received
annually
Rs.1,00,0007.5%Rs. 7,500Rs. 7,500

Though the interest received from these bonds is non-taxable, any profits derived by selling these bonds in the secondary market are liable to taxes.

Who is eligible to invest in tax-free bonds?
  • Retail Individual Investors (RIIs) - Including members of Hindu undivided family (HUF) and Non-Resident Indians (NRIs).

  • High Net-worth Individuals (HNIs) - who have a low-risk appetite and can invest up to Rs. 10 lakhs.

  • Qualified Institutional Buyers (QIBs) - who have been defined under the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.

  • Corporate, trusts, co-operative banks, regional rural banks

How does one invest in tax-free bonds?
  • You can avail these bonds in physical form as well as in Demat mode.

  • If you are investing in tax-free bonds during the public issue, you have the option to apply online as well as offline for it.

  • If you are investing in tax-free bonds after the public issue, you can invest via your trading account, just like you invest in shares.

Note: Currently, there is no tax-free bond issue in the primary market. If anyone interested can invest through the secondary market.

Why invest in tax-free bonds?
  • Tax-free income

  • Low risk

  • Easy liquidity

  • Demat optional

  • Ratings by various agencies available