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TDS on bond interest means the company paying your coupon deducts a portion of tax before the money reaches your bank. Tax deducted at source is a government system to collect tax upfront rather than waiting for you to file your ITR at year-end.
What Is TDS on Bond Interest and Why Does It Apply?
When a company pays a coupon on a bond or NCD, it calculates TDS on bond interest first, cuts that amount, and transfers the rest to you. The tax deducted at source shows up in your Form 26AS and Annual Information Statement. When you file your ITR, you either pay any remaining tax or claim a refund if too much was deducted.
A simple example: Your bond pays Rs 15,000 in coupons. TDS on bond interest at 10% means Rs 1,500 is cut and Rs 13,500 reaches your account. That Rs 1,500 sits as credit in your tax account. Since your income exceeds the threshold of ₹10,000, this will be cut as tax. If your income was below the taxable limit, you would have gotten the full amount back as a refund.
Tax deducted at source on bond coupons is not a penalty. It is an advance. Understanding this distinction saves most investors unnecessary worry when they see a deduction on their coupon statement.
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TDS on Bond Interest: Rate and Threshold in 2026
TDS on bond interest is governed by Section 193 of the Income Tax Act, replaced by Section 393 under the new Income Tax Act 2025, effective from April 2026. The rate and threshold remain unchanged.
TDS on bond interest is deducted at 10% once interest from a single issuer crosses Rs 10,000 in a financial year.
| Situation | TDS on Bond Interest | Rate |
| Interest below Rs 10,000 per issuer per year | No TDS on bond interest | Nil |
| Interest at or above Rs 10,000 per issuer per year | TDS on bond interest applies | 10% |
| No PAN or inoperative PAN | TDS on bond interest applies | 20% |
The TDS threshold NCD interest and bond investors face is per issuer, not aggregate. If you hold bonds from three companies earning Rs 9,000 from each, no TDS on bond interest is deducted even though your total is Rs 27,000. You still owe tax on the full amount at your slab rate and pay it through self-assessment when filing your ITR.
TDS on bond interest at 20% is triggered automatically when your PAN is not linked to Aadhaar or is inoperative. Keep your PAN active to stay at the standard 10% rate and avoid an unnecessary double deduction that you later have to claim back.
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Which Bonds Have TDS on Bond Interest Deducted?
Not all bonds work the same way. TDS on bond interest depends on the type of bond, the issuer, and how the bond is held.
| Bond Type | TDS on Bond Interest? | Rate |
| Corporate NCDs and debentures | Yes | 10% above Rs 10,000 |
| Listed NCDs in demat form | Yes | 10% above Rs 10,000 |
| Central Government securities | No TDS on bond interest | Nil |
| Tax-free bonds (NHAI, REC, PFC, IRFC) | No TDS on bond interest | Nil |
One of the most important tax changes for investors relates to listed NCDs held in demat form. Before April 2023, interest on listed debentures held in demat form was generally exempt from TDS under Section 193. The Finance Act, 2023 withdrew this exemption, making interest on listed NCDs subject to TDS even when they are held in demat form. This treatment continues in FY 2026–27, with TDS applicable under the current provisions of Section 193, subject to the prescribed ₹10,000 threshold introduced from 1 April 2025.
The TDS Threshold for NCD Interest Explained
The TDS threshold NCD investors must track is Rs 10,000 per issuer per financial year. Below this limit, no TDS on bond interest is deducted. At or above Rs 10,000, tax deducted at source applies to the full interest amount.
Here is why this matters: Say you hold NCDs from five different companies. Each pays you Rs 9,500 in interest during the year. Total interest received: Rs 47,500. TDS on bond interest deducted: Zero. Because no single issuer crossed the TDS threshold NCD interest limit, none of them deducted anything.
You still owe income tax on the full Rs 47,500 at your slab rate. The absence of TDS on bond interest does not remove your tax obligation. You pay it yourself as a self-assessment tax when you file your ITR.
For investors with a larger position in a single NCD, the TDS threshold NCD interest limit is crossed quickly. A bond paying 8% on Rs 150,000 face value generates Rs 12,000 in annual interest, above the Rs 10,000 limit, triggering TDS on bond interest on the full Rs 12,000.
The TDS interest threshold works per issuer, not per bond series. If one company has issued two different NCD tranches and you hold both, the interest from both is aggregated for that single issuer. If the combined total crosses Rs 10,000, TDS on bond interest applies.
Form 121: What Replaced 15G 15H Bonds in 2026
If you have submitted Form 15G or 15H in the past to stop TDS on bond interest, those forms are invalid from 1 April 2026. The Income Tax Act 2025 merged Forms 15G and 15H into a single declaration called Form 121. Investors whose total income falls below the basic exemption limit use this form to request nil TDS on bond interest from all their bond issuers.
How 15G and 15H bonds in 2026 changed with Form 121:
| Feature | Old Forms 15G & 15H | New Form 121 |
| Separate forms by age | Yes. Form 15G for eligible individuals below 60 years; Form 15H for eligible senior citizens | No. A single Form 121 applies to eligible taxpayers |
| Submission | Separate declaration to each deductor | Single electronic declaration through the prescribed portal/system |
| Unique identifier | None | The declaration allotted a Unique Identification Number (UIN) |
| Effective from | Until 31 March 2026 | From 1 April 2026 |
| Governing law | Income-tax Act, 1961 | Income Tax Act, 2025 |
The biggest practical change with 15G and 15H bonds is centralized submission. Previously, an investor holding bonds from six issuers had to submit Form 15G or 15H to each one to stop TDS on bond interest. With Form 121, one submission through your depository participant generates a UIN covering all your holdings. Every issuer is instructed automatically.
Submit Form 121 before the first coupon credit of the financial year. If the issuer credits interest before the form is processed, TDS on bond interest will be deducted automatically. That cannot be reversed retrospectively. You recover it only as a refund through your ITR.
Form 121 must be submitted fresh every financial year. It does not carry forward. And it can only stop TDS on bond interest going forward. It has no effect on tax deducted at source that has already been applied to past coupon payments.
The 15G 15H bonds’ 2026 transition also changed eligibility slightly. Under the old system, senior citizens submitted Form 15H with different income conditions. Under Form 121, all investors use the same form regardless of age, with the same eligibility condition: your total income must fall below the basic exemption limit for the year.
What to Do When TDS on Bond Interest Exceeds Your Tax
This is common. TDS on bond interest is a fixed 10% advance. Your actual tax rate may be lower. When TDS on a bond coupon exceeds your actual liability, the excess becomes a refund.
Steps to recover excess TDS on bond interest:
- Download Form 26AS from the Income Tax portal
- Verify that TDS on bond interest from every issuer appears correctly
- Download your Annual Information Statement and match the coupon figures
- Report the full coupon in Schedule OS under Income from Other Sources
- Enter the TDS on bond interest credit in Schedule TDS
- The ITR portal calculates your refund based on your slab rate and total income
If TDS on bond interest appears in the issuer’s records but not in your Form 26AS, contact the issuer or their Registrar and Transfer Agent to correct their TDS return. A mismatch between what you declare and what AIS shows generates an automated notice from the Income Tax Department.
TDS that is missing from Form 26AS cannot be claimed as a credit in your ITR until the issuer corrects it. This is the most common delay investors face when claiming refunds.
New Section Numbers Under the Income Tax Act 2025
The Income Tax Act 2025 came into force on 1 April 2026. It restructured the entire TDS framework. TDS on bond interest now sits under Section 393 instead of Section 193. Tax deducted at source on bond coupons is governed by the same rules as before. Only the section number and form references changed.
| Old Reference | New Reference | What It Covers |
| Section 193, Income Tax Act, 1961 | Section 393, Income Tax Act, 2025 | TDS on bond interest and NCD coupons |
| Forms 15G & 15H | Form 121 | Nil-TDS declaration for eligible investors |
| Section 197A | Section 393(6) | Legal basis for furnishing a nil-TDS declaration |
| Section 206AA | Corresponding provision under the Income Tax Act, 2025 | Higher TDS where PAN is not furnished |
| Form 16A | Form 131 | Quarterly TDS certificate for non-salary income |
For investors, this is administrative. The rate and threshold for TDS on bond interest are unchanged. TDS on bond interest remains 10% above Rs 10,000. Tax deducted at source on bond coupon at 20% still triggers when PAN is absent. The only thing that changed is the section your issuer references on the TDS certificate.
If you receive a TDS certificate for FY 2026-27 referencing Section 393 instead of Section 193, both describe the same provision. The TDS on bond interest rules are identical.
Frequently Asked Questions
TDS on bond interest is 10% on interest above Rs 10,000 per issuer per year. Without a valid PAN, TDS on bond interest rises to 20%. Below Rs 10,000 from a single issuer, no TDS on bond interest is deducted.
TDS on bond interest now falls under Section 393 of the Income Tax Act 2025 instead of Section 193 of the old Act. Forms 15G and 15H are replaced by Form 121. The TDS threshold NCD interest investors face remains Rs 10,000 per issuer per year. Rates are unchanged.
Bond interest is taxed at your income slab rate. TDS on bond interest at 10% is deducted in advance. If your slab rate is higher than 10%, pay the difference at ITR filing. If your income is below the taxable limit, claim the TDS on bond interest back as a refund.
Bank FD interest attracts TDS at 10% above Rs 50,000 per year. The TDS threshold NCD interest and bond investors face is lower at Rs 10,000 per issuer per year under Section 393.
TDS on bond interest in 2026 is 10% above Rs 10,000 per issuer. Tax deducted at source at 20% applies if PAN is missing or inoperative.
TDS on bond interest moves from Section 193 to Section 393. Tax deducted at source on bond coupon rates and thresholds are unchanged. The exemption for listed NCDs in demat form removed in 2023 still does not apply. The TDS threshold NCD interest investors face stays at Rs 10,000.
Yes, if your total income is below the basic exemption limit. Submit Form 121 to your depository participant before the first coupon of the year. This replaces the old 15G 15H bonds 2026 system and generates a UIN covering all your bond issuers automatically.
Yes. The 15G 15H bonds’ 2026 transition means both forms are invalid from 1 April 2026. Form 121 under Section 393(6) replaces them. One unified form for all ages. Submit once via NSDL or CDSL instead of separately to each issuer.
Form 121 is a declaration that your total income is below the taxable limit. Submit it before the first coupon credit of the year. The issuer stops deducting TDS on bond interest once a UIN is generated. Submit it fresh every year. Tax deducted at source already applied before submission cannot be reversed.
Yes. TDS on bond interest applies to listed NCDs in demat form from April 2023 onward. Tax deducted at source on bond coupon is 10% above the Rs 10,000 TDS threshold NCD interest limit per issuer per year, regardless of listing status or demat holding.
Disclaimer
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