Tax-Free Interest
Tax-Free Bonds
Verified Indian financial mathematics, statutory regulations, and step-by-step actionable breakdowns.
Expected Yield5.0% - 5.7% tax-free yield
Lock-In Tenure10 - 20 years (tradable)
Risk LevelLow Risk
Tax StatusTaxable as Slab
Overview & Statutory Background
Tax-free bonds are issued by government-backed entities such as NHAI, REC and IRFC. The interest is exempt from income tax, making the post-tax yield attractive for investors in the 30% bracket. New issuances are rare; most buying happens on the secondary market.
Key Features & Operational Guidelines
Interest exempt from income tax under Section 10(15)
Listed on stock exchanges for liquidity
Issued by AAA-rated PSUs
Fixed annual coupon
Who is Eligible to Invest?
- •Resident investors with a demat account
Indian Taxation Breakdown
| Stage | Tax Treatment |
|---|---|
| Initial Investment | No deduction. |
| Interest & Returns | Interest is 100% tax-free. |
| Maturity / Withdrawal | Capital gains on sale in market are taxable. |
Advantages & Limitations
Key Advantages (Pros)
- ✓Tax-free coupon
- ✓AAA credit quality
- ✓Predictable income
Important Limitations (Cons)
- ✕Low liquidity in some issues
- ✕Prices can drop when rates rise
- ✕Low nominal yield
Tax-Free Bonds FAQs
Fresh issuances are rare. You can usually buy them from the secondary market through your broker. Check the current yield-to-maturity before buying.
Calculate Compound Returns
Use our interactive calculators to simulate exact growth schedules for this asset.