{"id":13356,"date":"2026-05-11T12:51:02","date_gmt":"2026-05-11T12:51:02","guid":{"rendered":"https:\/\/goldenpi.com\/blog\/?p=13356"},"modified":"2026-05-11T12:54:45","modified_gmt":"2026-05-11T12:54:45","slug":"capital-gains-vs-interest-income-from-bonds","status":"publish","type":"post","link":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/","title":{"rendered":"Capital Gains Vs. Tax on Interest Income From Bonds: Explained with Examples"},"content":{"rendered":"\n<p>When you earn interest from the bonds on your investment. This is considered as your regular income as per the govt and rbi rules. Here we will understand the tax on capital gains in detail.<\/p>\n\n\n\n<p>When you invest in bonds, you may earn returns in two ways:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest income from coupon payments (except zero-coupon bonds)<\/li>\n\n\n\n<li>Profits when you sell the bond for a higher price before maturity<\/li>\n<\/ul>\n\n\n\n<p>Now, both these types of earnings are subject to taxation in India. The first one is taxed at slab rates, while the profits you earn are taxed as capital gains as per the holding period and listing status of the bond.&nbsp;<\/p>\n\n\n\n<p>But how do these taxes actually work and impact you? Let\u2019s find out in this article as we assess how capital gains vs. tax on interest income from bonds are applied and how they impact your returns.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#Understanding_Capital_Gains_Tax_on_Bonds\" >Understanding Capital Gains Tax on Bonds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#Reviewing_How_Interest_Income_from_Bonds_is_Taxed_in_India\" >Reviewing How Interest Income from Bonds is Taxed in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#Capital_Gains_Vs_Tax_on_Interest_Income_from_Bonds\" >Capital Gains Vs. Tax on Interest Income from Bonds&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#Invest_in_bonds_and_earn_9-12_fixed_returns\" >Invest in bonds and earn 9-12% fixed returns<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#Understanding_Bond_Tax_with_Worked_Examples_in_India\" >Understanding Bond Tax with Worked Examples in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#In_Summary_Tax_Impact_Depends_on_Your_Income_Levels\" >In Summary, Tax Impact Depends on Your Income Levels<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#Capital_Gains_Vs_Tax_FAQs\" >Capital Gains Vs. Tax FAQs<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_Capital_Gains_Tax_on_Bonds\"><\/span><strong>Understanding Capital Gains Tax on Bonds<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Capital gains refer to the profit a bond investor earns when they sell a bond in the <a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/what-is-a-secondary-market\/\">secondary market<\/a> at a price higher than what they originally paid. In such cases, there is a tax on a bond sold before maturity when a profit is booked.\u00a0<\/p>\n\n\n\n<p>This profit amount is taxable, and the tax rate depends on the holding period and whether the bond is listed or unlisted.<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>STCG and LTCG Taxes on Bonds<\/strong><strong> That Are Listed<\/strong><\/li>\n<\/ol>\n\n\n\n<p>If the bond is listed, the capital gains tax applies in the following way:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>STCG: <\/strong>Applicable when a listed bond is held for 12 months or less. The gain is added to your income and taxed at the slab rate.&nbsp;<\/li>\n\n\n\n<li><strong>LTCG: <\/strong>Applicable when a listed bond is held for more than 12 months. The capital gain is taxed at 12.5% for transfers on\/after 23rd July 2024 without any indexation benefits.<\/li>\n<\/ul>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\">\n<li><strong>STCG and LTCG Taxes on Bonds<\/strong><strong> That Are Unlisted<\/strong><\/li>\n<\/ol>\n\n\n\n<p>In case of unlisted bonds, <a href=\"https:\/\/goldenpi.com\/blog\/tag\/capital-gains-taxed\/\">capital gains tax applies<\/a> in the following way:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>STCG:<\/strong> Applicable if the bond is held for 24 months or less. The gain is added to your income and taxed at the income tax slab rate applicable.<\/li>\n\n\n\n<li><strong>LTCG:<\/strong> Applicable if the bond is held for more than 24 months. The profits are taxed at 12.5%&nbsp; for transfers on\/after 23rd July 2024 without any indexation benefits.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reviewing_How_Interest_Income_from_Bonds_is_Taxed_in_India\"><\/span><strong>Reviewing How Interest Income from Bonds is Taxed in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The interest you earn from <a href=\"https:\/\/goldenpi.com\/blog\/bond-news\/5-tax-filing-requirements-for-bond-investors\/\">bond investments<\/a> is taxed at your slab rate. In other words, the bond interest tax rate depends on your applicable tax slab.\u00a0<\/p>\n\n\n\n<p>This means:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest payments from bonds should be listed under \u2018Income from Other Sources\u2019 in your ITR, along with any other income, like salary, dividends, rental income, and FD interest.<\/li>\n\n\n\n<li>This interest income is added to your annual income for the fiscal year.<\/li>\n\n\n\n<li>The bond interest tax rate is your applicable income tax slab rate (e.g., 20% or 30% plus applicable cess)<\/li>\n<\/ul>\n\n\n\n<p>Plus, you should also note that bond issuers have to deduct TDS at 10% from the interest income before crediting it to your account. You can adjust this deducted amount against your total liability when filing your ITR.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Also Read<\/h3>\n\n\n<ul class=\"wp-block-latest-posts__list is-grid columns-3 wp-block-latest-posts\"><li><div class=\"wp-block-latest-posts__featured-image aligncenter\"><img decoding=\"async\" width=\"1024\" height=\"486\" src=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11134111\/mahila_samman_vs_bank_fd_1160x550-1-1024x486.jpg\" class=\"attachment-large size-large wp-post-image\" alt=\"Mahila Samman\" style=\"\" srcset=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11134111\/mahila_samman_vs_bank_fd_1160x550-1-1024x486.jpg 1024w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11134111\/mahila_samman_vs_bank_fd_1160x550-1-300x142.jpg 300w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11134111\/mahila_samman_vs_bank_fd_1160x550-1-768x364.jpg 768w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11134111\/mahila_samman_vs_bank_fd_1160x550-1.jpg 1160w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/div><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/goldenpi.com\/blog\/bank-fd\/mahila-samman-savings-certificate-vs-bank-fds\/\">Mahila Samman Savings Certificate vs Bank FDs: A Complete Comparison<\/a><\/li>\n<li><div class=\"wp-block-latest-posts__featured-image aligncenter\"><img decoding=\"async\" width=\"1024\" height=\"486\" src=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11135747\/Premature-Withdrawal-Rules-for-Bank-FDs-1024x486.png\" class=\"attachment-large size-large wp-post-image\" alt=\"Premature Withdrawal Rules for Bank FDs\" style=\"\" srcset=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11135747\/Premature-Withdrawal-Rules-for-Bank-FDs-1024x486.png 1024w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11135747\/Premature-Withdrawal-Rules-for-Bank-FDs-300x142.png 300w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11135747\/Premature-Withdrawal-Rules-for-Bank-FDs-768x364.png 768w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11135747\/Premature-Withdrawal-Rules-for-Bank-FDs-1536x729.png 1536w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11135747\/Premature-Withdrawal-Rules-for-Bank-FDs.png 1821w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/div><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/goldenpi.com\/blog\/fixed-deposit\/premature-withdrawal-rules-for-bank-fds\/\">Premature Withdrawal Rules for Bank FDs: Penalties Explained<\/a><\/li>\n<li><div class=\"wp-block-latest-posts__featured-image aligncenter\"><img decoding=\"async\" width=\"1024\" height=\"486\" src=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11131115\/rbi_retail_direct_vs_obpp-1024x486.jpg\" class=\"attachment-large size-large wp-post-image\" alt=\"RBI retail Direct vs OBPP\" style=\"\" srcset=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11131115\/rbi_retail_direct_vs_obpp-1024x486.jpg 1024w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11131115\/rbi_retail_direct_vs_obpp-300x142.jpg 300w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11131115\/rbi_retail_direct_vs_obpp-768x364.jpg 768w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/11131115\/rbi_retail_direct_vs_obpp.jpg 1160w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/div><a class=\"wp-block-latest-posts__post-title\" href=\"https:\/\/goldenpi.com\/blog\/investment-guide\/rbi-retail-direct-vs-online-bond-platforms-obpp\/\">RBI Retail Direct vs Online Bond Platforms (OBPP): Which Is Better?<\/a><\/li>\n<\/ul>\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Capital_Gains_Vs_Tax_on_Interest_Income_from_Bonds\"><\/span><strong>Capital Gains Vs. Tax on Interest Income from Bonds&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Still confused about capital gains tax and tax on interest income from bonds? Here\u2019s a table that sums up the capital gains vs. bond interest income tax more clearly:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><div class=\"pcrstb-wrap\"><table class=\"has-fixed-layout\"><thead><tr><th><strong>Parameter<\/strong><\/th><th><strong>Capital Gains Tax<\/strong><\/th><th><strong>Tax on Interest Income from Bonds<\/strong><\/th><\/tr><\/thead><tbody><tr><td><strong>What is taxed<\/strong><\/td><td>Profit made by selling the bond at a higher price than its purchase price<\/td><td>Interest earned from holding the bond<\/td><\/tr><tr><td><strong>When does it arise<\/strong><\/td><td>When you sell the bond before maturity<\/td><td>Periodically, when you receive interest payments from the bond&nbsp;<\/td><\/tr><tr><td><strong>Tax treatment<\/strong><\/td><td>Taxed as short-term or long-term capital gains&nbsp;<\/td><td>Taxed income from other sources<\/td><\/tr><tr><td><strong>Tax rate<\/strong><\/td><td>Depends on holding period and listing status<\/td><td>Taxed at your income tax slab rate<\/td><\/tr><tr><td><strong>Tax Impact<\/strong><\/td><td>May be optimised with tax loss harvesting<\/td><td>No offset benefit, fully taxable as regular income<\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n\n\n<!-- wp:html -->\n<div class=\"gp-premium-gold-banner\" style=\"background-color: #000000; background: linear-gradient(135deg, #000000 0%, #1a1a1a 100%); border-radius: 12px; padding: 18px 20px 8px 20px; margin: 30px auto 5px auto; color: #ffffff; font-family: 'Nunito Sans', sans-serif; box-sizing: border-box; width: 100%; max-width: 750px; overflow: hidden; position: relative; border: 1px solid #333;\">\n    \n    <div style=\"z-index: 2; position: relative; margin-bottom: 12px; padding-left: 10px;\">\n        <h2 style=\"color: #d4af37 !important; font-family: 'Nunito Sans', sans-serif !important; font-size: 22px !important; font-weight: 700 !important; margin: 0 0 4px 0 !important; line-height: 1.2 !important; border: none !important; text-transform: none !important; letter-spacing: 0.5px;\"><span class=\"ez-toc-section\" id=\"Invest_in_bonds_and_earn_9-12_fixed_returns\"><\/span>\n            Invest in bonds and earn 9-12% fixed returns\n        <span class=\"ez-toc-section-end\"><\/span><\/h2>\n        <p style=\"color: #b5b5b5 !important; font-size: 14px !important; margin: 0 !important; line-height: 1.4 !important; font-weight: 400 !important;\">\n            Start investing with just \u20b910,000 and grow your wealth with fixed-return bond opportunities.\n        <\/p>\n    <\/div>\n\n    <div style=\"display: flex; align-items: center; justify-content: space-between; z-index: 2; position: relative; padding-bottom: 5px; padding-left: 10px; padding-right: 10px;\">\n        \n        <div style=\"padding-left: 0;\">\n            <a href=\"https:\/\/goldenpi.com\/bonds\" target=\"_blank\" rel=\"noopener\" style=\"display: inline-flex; align-items: center; padding: 8px 22px; background: linear-gradient(90deg, #d4af37 0%, #f2d479 100%); color: #000000 !important; border-radius: 6px; text-decoration: none !important; font-weight: bold; font-size: 13px; box-shadow: 0 4px 15px rgba(212, 175, 55, 0.3); line-height: 1;\">\n                Explore Now\n            <\/a>\n        <\/div>\n\n        <div style=\"background-color: transparent; display: flex; justify-content: flex-end; align-items: center;\">\n            <img decoding=\"async\" src=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2026\/05\/08120536\/Logo-01-scaled.png\" alt=\"GoldenPi\" style=\"width: 100%; max-width: 130px; height: auto; display: block; margin: 0;\">\n        <\/div>\n    <\/div>\n\n    <div style=\"position: absolute; right: -50px; top: -50px; width: 180px; height: 180px; background: radial-gradient(circle, rgba(212, 175, 55, 0.08) 0%, rgba(0,0,0,0) 70%); border-radius: 50%; z-index: 1;\">&nbsp;<\/div>\n<\/div>\n<!-- \/wp:html --><style data-type=\"vc_shortcodes-custom-css\"><\/style>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_Bond_Tax_with_Worked_Examples_in_India\"><\/span><strong>Understanding <\/strong><strong>Bond Tax with Worked Examples in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Now, let\u2019s look at capital gains vs. interest income bonds tax through a few worked-out examples. For simplicity, we have based these examples only on listed bonds.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 1: Short-Term Capital Gains Tax on a Listed Bond<\/strong><\/h3>\n\n\n\n<p>Let\u2019s say you buy a listed bond at \u20b91,00,000 and sell it after 8 months at \u20b91,05,000.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Holding period:<\/strong> Less than 12 months<\/li>\n\n\n\n<li><strong>Capital gain<\/strong>: \u20b95,000<\/li>\n\n\n\n<li><strong>Tax type:<\/strong> STCG<\/li>\n<\/ul>\n\n\n\n<p>Since it is short-term, the gain is added to your income and taxed at the slab rate. Assuming you fall under the 30% tax bracket (annual income of \u20b924 lakhs or more):<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Tax payable = \u20b95,000 \u00d7 30% = \u20b91,500<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 2: Long-Term Capital Gains Tax on a Listed Bond<\/strong><\/h3>\n\n\n\n<p>Let\u2019s say you sell the listed bond after 18 months for \u20b91,08,000. In this case, the specifics will look like this:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Holding period: <\/strong>More than 12 months<\/li>\n\n\n\n<li><strong>Capital gain<\/strong>: \u20b98,000<\/li>\n\n\n\n<li><strong>Tax type:<\/strong> LTCG<\/li>\n\n\n\n<li><strong>Tax rate:<\/strong> 12.5% (post July 2024 rules)<\/li>\n\n\n\n<li><strong>Tax payable <\/strong>=<strong> <\/strong>\u20b98,000 \u00d7 12.5% = \u20b91,000<\/li>\n<\/ul>\n\n\n\n<p>Based on the above capital gain calculations for bonds, the LTCG tax may look like the better option, since it has a lower tax impact. However, that\u2019s not always the case.&nbsp;<\/p>\n\n\n\n<p>Plus, in the case of capital gains tax, there\u2019s a possibility of tax loss harvesting where you can carry losses forward for 8 years to offset profits. This isn\u2019t possible for interest income taxation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Example 3: Tax on Interest Income from Bonds<\/strong><\/h3>\n\n\n\n<p>Suppose you hold a bond worth \u20b91,00,000 with a 9% annual coupon and fall into the 30% tax bracket. This means:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Annual interest earned: \u20b99,000<\/li>\n\n\n\n<li>Tax payable = \u20b99,000 \u00d7 30% = \u20b92,700<\/li>\n<\/ul>\n\n\n\n<p>Even if TDS of 10% (\u20b9900) is deducted:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Total tax liability = \u20b92,700<\/li>\n\n\n\n<li>Remaining payable at filing = \u20b91,800<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Focusing on the Nuances of the Tax Impact of Capital Gains Vs. Interest Income Tax on Bonds<\/strong><\/h3>\n\n\n\n<p>The tax impact of capital gains vs. interest income from bonds is not the same for every investor. It largely depends on your total income and applicable tax slab.<\/p>\n\n\n\n<p>For investors earning up to \u20b912 lakh under the new tax regime, interest income and STCG may not result in any tax liability. This is because of the Section 87A rebate (up to \u20b960,000), which can reduce the total tax payable to zero. In such cases:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest income &#8211; effectively tax-free (after rebate)<\/li>\n\n\n\n<li>STCG &#8211; also tax-free (after rebate)<\/li>\n<\/ul>\n\n\n\n<p>However, LTCG on bonds is taxed at 12.5% and does not qualify for the 87A rebate. This means LTCG is applicable and tax is payable at 12.5% even at lower income levels<\/p>\n\n\n\n<p>On the other hand, for investors in higher income brackets (above \u20b912 lakh):<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest income and STCG are taxed at 15% to 30% (slab rates)<\/li>\n\n\n\n<li>LTCG is taxed at a lower flat rate of 12.5%<\/li>\n<\/ul>\n\n\n\n<p>So, in a nutshell:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Higher income &#8211; LTCG may be more tax-efficient<\/li>\n\n\n\n<li>Lower income &#8211; interest income and STCG may be more tax-efficient<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_Summary_Tax_Impact_Depends_on_Your_Income_Levels\"><\/span><strong>In Summary, Tax Impact Depends on Your Income Levels<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>So the tax impact of capital gains vs. interest income tax on bonds depends on:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Your income level<\/li>\n\n\n\n<li>Your existing tax losses and outstanding liability<\/li>\n<\/ul>\n\n\n\n<p>For those in the higher income brackets, the LTCG tax might help save more, as it is levied at a flat rate. But bond interest income tax rates for higher income brackets can go up to 30%. However, for low-income earners, STCG tax and interest income taxation might be easier to manage as the rate applicable is low.&nbsp;<\/p>\n\n\n\n<p>Want to start investing in bonds and other fixed-income assets? Head to <a href=\"https:\/\/goldenpi.com\/\">GoldenPi<\/a> and create an account to start browsing bonds. Choose from a wide range of corporate bond options, including AAA-rated bonds and high-yield bonds based on your risk appetite and goals.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Capital_Gains_Vs_Tax_FAQs\"><\/span>Capital Gains Vs. Tax <strong>FAQs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1778503254244\"><strong class=\"schema-faq-question\"><strong>Is the capital gains tax always applicable to bonds?<\/strong><\/strong> <p class=\"schema-faq-answer\">No, capital gains tax does not apply to all bonds in every situation. It applies only when you sell a bond before maturity and make a profit. If you hold a bond till maturity, there is no capital gains tax, and only the interest earned is taxed.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1778503266603\"><strong class=\"schema-faq-question\"><strong>Can 54EC bonds help me save on capital gains taxes?<\/strong><\/strong> <p class=\"schema-faq-answer\">54EC bonds may help you save capital gains tax, but only in specific situations. If you have long-term capital gains from selling assets like property, you can invest that amount in 54EC bonds (such as NHAI or REC bonds) to claim an exemption of up to \u20b950 lakhs under Section 54EC.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1778503273818\"><strong class=\"schema-faq-question\"><strong>Can I offset the impact of STCG and LTCG on bonds with losses?<\/strong><\/strong> <p class=\"schema-faq-answer\">Yes, you can offset STCG and LTCG on bonds with capital losses. Short-term losses can offset both STCG and LTCG on bonds, while long-term losses can offset only LTCG. You can also carry your losses forward for up to 8 years.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1778503286449\"><strong class=\"schema-faq-question\"><strong>When do I pay the interest income tax on bond investments?<\/strong><\/strong> <p class=\"schema-faq-answer\">According to the Income Tax Act of 1961, you have to report and pay tax on your bond interest income in the year in which it is received\/accrued.\u00a0<\/p> <\/div> <\/div>\n\n\n\n<p>Disclaimer:<\/p>\n\n\n\n<p>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.<\/p>\n\n\n\n<p>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.<\/p>\n\n\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@graph\": [\n    {\n      \"@type\": \"BlogPosting\",\n      \"@id\": \"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#blogposting\",\n      \"mainEntityOfPage\": \"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/\",\n      \"headline\": \"Capital Gains Vs. 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This is considered as your regular income as per the govt and&hellip;<\/p>\n","protected":false},"author":16,"featured_media":13449,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[151],"tags":[204,992,993,994],"class_list":["post-13356","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-matters","tag-capital-gains","tag-ltcg-taxes-on-bonds","tag-stcg-taxes-on-bonds","tag-tax-on-capital"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Capital Gains Vs. Tax on Interest Income From Bonds: Explained with Examples<\/title>\n<meta name=\"description\" content=\"Understand the capital gains vs. tax on interest income from bonds in detail. 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As a Financial Controller at Oxyzo, Kunal focuses on the core pillars of financial integrity - transparency, regulatory excellence and the strategic reporting that builds investor trust.","sameAs":["https:\/\/www.linkedin.com\/in\/ca-kunal-arora-005299158\/"],"url":"https:\/\/goldenpi.com\/blog\/author\/kunal-arora\/"},{"@type":"Question","@id":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#faq-question-1778503254244","position":1,"url":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#faq-question-1778503254244","name":"Is the capital gains tax always applicable to bonds?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"No, capital gains tax does not apply to all bonds in every situation. It applies only when you sell a bond before maturity and make a profit. If you hold a bond till maturity, there is no capital gains tax, and only the interest earned is taxed.","inLanguage":"en-US"},"inLanguage":"en-US"},{"@type":"Question","@id":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#faq-question-1778503266603","position":2,"url":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#faq-question-1778503266603","name":"Can 54EC bonds help me save on capital gains taxes?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"54EC bonds may help you save capital gains tax, but only in specific situations. If you have long-term capital gains from selling assets like property, you can invest that amount in 54EC bonds (such as NHAI or REC bonds) to claim an exemption of up to \u20b950 lakhs under Section 54EC.","inLanguage":"en-US"},"inLanguage":"en-US"},{"@type":"Question","@id":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#faq-question-1778503273818","position":3,"url":"https:\/\/goldenpi.com\/blog\/financial-matters\/capital-gains-vs-interest-income-from-bonds\/#faq-question-1778503273818","name":"Can I offset the impact of STCG and LTCG on bonds with losses?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"Yes, you can offset STCG and LTCG on bonds with capital losses. Short-term losses can offset both STCG and LTCG on bonds, while long-term losses can offset only LTCG. 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