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When you invest in bonds, you can earn income from two main sources. The first is interest income, which you receive periodically from the bond issuer. The second is capital gains, which may arise if you sell the bond in the secondary market before its maturity.
Under the Income Tax Act, 1961, both these types of income are taxable and create different filing requirements. To remain compliant with tax rules and avoid penalties or notices, it is important to understand these obligations.
This article explains five major tax filing requirements related to bond investments that you should be aware of for FY 2025–26 (AY 2026–27).
Want to Remain Tax Compliant? 5 Tax Filing Requirements You Must Complete for FY 25-26
As an investor, the first step toward tax compliance is assessing which tax regime works better for you. Under the Income Tax Act, 1961, taxpayers can choose between the old tax regime and the new tax regime.
To make the right selection, you may:
- Calculate your total tax liability under both regimes
and
- Select the one that results in lower tax outgo
Once the suitable regime is selected, you may complete the following five tax filing requirements for FY 2025–26:
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1. Reporting Interest Earned from Bonds
Under the Income Tax Act, 1961, income must be reported under five different heads:
- Income from Salary
- Income from House Property
- Profits and Gains from Business or Profession (PGBP)
- Capital Gains
- Income from Other Sources
Now, the coupon interest you receive from bonds must be reported under the head “Income from Other Sources.” For tax purposes, this interest income is treated similarly to interest earned from bank fixed deposits. 100% of the interest amount is:
- Added to your total taxable income
and
- Taxed according to your applicable income tax slab rate
Additionally, the income must be reported when it becomes due or on an “accrual basis”. For example:
- Suppose you purchased a bond that pays ₹10,000 as annual interest every March.
- Assume that the interest for FY 2025–26 becomes due on March 31, 2026.
- Now, it must be reported as income for FY 2025–26 even if the payment is credited to your account in April 2026.
2. Reporting Capital Gains if Bonds are Sold Before Maturity
If you sell a bond in the secondary market before its maturity date, the difference between the selling price and your purchase price is treated as capital gain or capital loss. This amount must be reported separately under the head “Capital Gains”.
The tax treatment depends on:
- Was the bond listed or unlisted?
and
- How long did you hold it before selling?
Firstly, let’s check out the latest bond taxation rules related to “listed bonds” (after considering the amendments introduced in the Union Budget 2025):
| Holding Period | Type of Capital Gain | Tax Treatment |
|---|---|---|
| Less than 12 months | Short-Term Capital Gain (STCG) | Taxed at the investor’s applicable income tax slab rate |
| 12 months or more | Long-Term Capital Gain (LTCG) | Taxed at 12.5% without indexation |
Whereas, if we talk about the tax treatment for “unlisted bonds”, as per Section 50AA, any unlisted bond that is transferred, matured, or redeemed on or after July 23, 2024, will always be treated as STCG (regardless of how long the bond was held). Thus, the profit will be taxed at the taxpayer’s applicable income tax slab rate.
3. Proper TDS Reporting + Raising Claims
Under Section 193, the issuer may deduct TDS at 10% on the interest income before paying it to the investor. When filing your ITR, you must verify that this deducted tax is correctly reflected in Form 26AS and the Annual Information Statement (AIS) available on the Income Tax Department portal.
Let’s check out some actions you may take:
| Filing Requirements | What You Should Do |
|---|---|
| Check Tax Records |
|
| Match the Income |
|
| Claim the Credit |
|
4. Choose the Correct ITR Form
While filing your income tax return, you must select the correct ITR form (available from ITR-1 to ITR-7) and submit it before the prescribed due date. It is highly important because filing under the wrong form may lead to:
- Processing delays
- Defective return notices
- The need to revise the return later.
So, which ITR form may be used by the bond investors? You may consider the following:
| When You Can Use ITR-1 | When You Should Use ITR-2 |
|---|---|
|
|
However, realise that both ITR 1 and ITR 2 cannot be used if you have income from a business or profession that is taxable under “Profits and Gains of Business or Profession (PGBP)”. In such cases, ITR-3 or ITR-4 may apply, subject to conditions:
| Situation | ITR Form |
| Business or professional income under “normal taxation.” | ITR-3 |
| Business income under the “presumptive taxation” scheme (subject to eligibility limits). | ITR-4 |
5. Disclosure of Foreign Bond Investments in ITR
If any Resident and Ordinarily Resident (ROR) investor holds foreign bond investments (such as US Treasury bonds or foreign corporate bonds), these holdings must be disclosed in:
- Schedule FA (Foreign Assets)
and
- Schedule FSI (Foreign Source Income).
Let’s check out the various filing requirements in this segment:
| Schedule in ITR | What It Is Used For | What You Must Report |
|---|---|---|
| Schedule FA |
|
|
| Schedule FSI |
|
|
Additionally, if taxes have already been paid in another country on the same income, such taxpayers may claim relief under the Double Taxation Avoidance Agreement (DTAA). This relief is claimed in Schedule TR (Tax Relief) in the ITR.
In Summary, Bond Investors Must Correctly Report Income, Verify TDS, and Select the Right ITR Form in 2026
Now you are aware of the several tax filing requirements that apply when you invest in bonds. By meeting these obligations, you remain compliant and reduce the risk of attracting notices or scrutiny from the Income Tax Department.
If we revise, the five tax filing requirements you must satisfy for FY 2025–26 (AY 2026–27) are:
- Report bond coupon interest under “Income from Other Sources.”
- Disclose capital gains from selling bonds before maturity.
- Verify TDS records and claim the correct credit in ITR.
- Choose the correct ITR form based on your income sources.
- Disclose foreign bond holdings in Schedule FA and FSI, if applicable.
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FAQs
1. Is interest income from bonds taxable at a special rate?
No, interest earned from bonds is taxed according to your applicable income tax slab rate. Special rates only apply to long-term capital gains, which are taxed at 12.5%.
2. What is the due date for filing an income tax return (ITR)?
As per the latest amendments introduced in the Union Budget 2026, the due date for filing ITR for individuals (without audit requirements) is 31st August of the assessment year. This rule is applicable for FY 26-27 (AY 27-28). However, for the current FY 2025–26 (AY 2026–27), the due date is 31st July.
3. Which ITR form should bond investors select?
The correct form depends on the type of income you have. As a bond investor, if you only have interest income, you may use ITR-1, provided other eligibility conditions are satisfied. However, if you also have capital gains from selling bonds, you must file ITR-2. In contrast, if you have income taxable u/h PGBP, you may choose from ITR 3 or 4.
4. What to do if there is a mismatch between the TDS deducted and Form 26AS?
If the TDS deducted on bond interest does not appear correctly in Form 26AS, you may contact the bond issuer or deductor and request them to correct their TDS return. Post-correction, the updated credit may start to reflect in your records.
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Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Bonds or non-convertible debentures (NCDs) are regulated by the Securities and Exchange Board of India and other government authorities. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
