{"id":5848,"date":"2023-04-03T15:10:28","date_gmt":"2023-04-03T15:10:28","guid":{"rendered":"https:\/\/goldenpi.com\/blog\/?p=5848"},"modified":"2026-04-01T10:12:30","modified_gmt":"2026-04-01T10:12:30","slug":"how-are-different-debt-instruments-taxed","status":"publish","type":"post","link":"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/","title":{"rendered":"How are different debt instruments taxed?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The financial landscape is replete with a plethora of investment instruments, each promising lucrative returns. Nevertheless, tax implications loom large and cannot be disregarded. As a matter of fact, debt instruments are often preferred over their equity counterparts due to their inherent safety. Consequently, it is worthwhile to examine how these risk-averse yet secure market instruments are taxed.<\/span><\/p><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 eztoc-toggle-hide-by-default' ><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\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/#Bonds\" >Bonds\u00a0<\/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\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/#Debentures\" >Debentures\u00a0<\/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\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/#Fixed_Deposits\" >Fixed Deposits<\/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\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/#Debt_Mutual_Funds\" >Debt Mutual Funds\u00a0<\/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\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/#Public_Provident_Fund\" >Public Provident Fund\u00a0<\/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\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/#Wrapping_up\" >Wrapping up\u00a0<\/a><\/li><\/ul><\/nav><\/div>\n\n<p><span style=\"font-weight: 400;\">In this regard, it is noteworthy to highlight some of the leading debt instruments that are prevalent among investors. It includes:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bonds\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Debentures<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Fixed Deposits<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Debt Mutual Funds<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Public Provisional Fund<\/span><\/li>\n<\/ol>\n<h4 style=\"text-align: center;\"><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/why-do-you-pay-taxes\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Debt_Instrument_Taxes\"><b>Why do you pay taxes?<\/b><\/a><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"Bonds\"><\/span><b>Bonds\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The debt instrument bond earns two types of income for an individual. One is the interest and the other one is<\/span><a href=\"https:\/\/goldenpi.com\/collections\/capital-gain-54ec-bonds\"> <span style=\"font-weight: 400;\">capital gains<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Interest is the return that you normally receive on a fixed-income instrument depending on the type of payout option chosen by the investor. Generally, the interests are considered as income from other sources and hence are taxed as per the individual\u2019s tax slab rate.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While capital gains are those profits made due to the difference in the buying price and selling price of the bond during the time of selling or redeeming. Redeeming is usually upon holding it till maturity whereas selling takes place when you want to sell the bond in the<\/span><a href=\"https:\/\/goldenpi.com\/faq\/bond-terminologies\/what-are-the-primary-market-and-secondary-market\"> <span style=\"font-weight: 400;\">secondary market<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The capital gains depend on the time until which the bond is held. Let&#8217;s say it is a listed bond, holding it for more than 12 months, and unlisted bonds holding it for more than 36 months calls it to be a long-term capital gain. And holding the bond anytime below the specified time of the respective type of bond results in<\/span><a href=\"https:\/\/goldenpi.com\/collections\/bonds-for-short-term-investment\"> <span style=\"font-weight: 400;\">short-term capital gains<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Well,<\/span><a href=\"https:\/\/goldenpi.com\/collections\/bonds-for-long-term-investment\"> <span style=\"font-weight: 400;\">long-term capital gains<\/span><\/a><span style=\"font-weight: 400;\"> are usually taxed at 10% without indexation or taxed at 20% with indexation plus the surcharges.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Yet at times, the taxation is a bit confusing as there are various types of bonds. Zero coupon bonds don\u2019t give interest but capital gains are usually taxed. Tax-free bonds exempt the tax on interest but there is a capital gain tax. An exception is in<\/span><a href=\"https:\/\/goldenpi.com\/sovereign-gold-bond\"> <span style=\"font-weight: 400;\">Sovereign Gold Bonds<\/span><\/a><span style=\"font-weight: 400;\"> as they even exempt capital gain tax if held till maturity.<\/span><a href=\"https:\/\/goldenpi.com\/collections\/tax-free-bonds\"> <span style=\"font-weight: 400;\">Tax saving bonds<\/span><\/a><span style=\"font-weight: 400;\"> though are for saving tax they\u2019ll incur tax on the interest and exempt tax on capital gains only if it is held till maturity.\u00a0<\/span><\/p>\n<h4 style=\"text-align: center;\"><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/a-comparison-of-listed-and-unlisted-bonds-what-you-need-to-know\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Debt_Instrument_Taxes\">Comparison of listed &amp; unlisted bonds<\/a><\/strong><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"Debentures\"><\/span><b>Debentures\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">These securities are again divided as listed and unlisted debentures. The tax deduction at source on the interest has been exempted on both. While the<\/span><a href=\"https:\/\/goldenpi.com\/collections\/capital-gain-54ec-bonds\"> <span style=\"font-weight: 400;\">capital gains<\/span><\/a><span style=\"font-weight: 400;\"> are still under consideration for taxation.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If it is a listed debenture and is held for less than or equal to 12 months then they are taxed under slab rates as per that individual\u2019s income. Similarly for the unlisted debentures, if it is held for less than or equal to <\/span><span style=\"font-weight: 400;\">24<\/span><span style=\"font-weight: 400;\"> months then they are taxed under the respective slab rates as well, <\/span><span style=\"font-weight: 400;\">without any indexation<\/span><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On the contrary, if the holding period exceeds 12 months for listed debentures then it is taxed at <\/span><span style=\"font-weight: 400;\">12.5%<\/span><span style=\"font-weight: 400;\"> without any indexation under<\/span><a rel=\"nofollow\" href=\"https:\/\/incometaxindia.gov.in\/_layouts\/15\/dit\/pages\/viewer.aspx?grp=act&amp;cname=cmsid&amp;cval=102120000000382000&amp;searchfilter=\"> <span style=\"font-weight: 400;\">section 112<\/span><\/a><span style=\"font-weight: 400;\">. And for the unlisted debentures if held for more than <\/span><span style=\"font-weight: 400;\">24 <\/span><span style=\"font-weight: 400;\">months then they are taxed at <\/span><span style=\"font-weight: 400;\">12.5%<\/span><span style=\"font-weight: 400;\"> without any indexation under section 112. <\/span><\/p>\n<h4 style=\"text-align: center;\"><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/the-working-of-market-linked-debentures\/\"><b>The working of Market- Linked-Debentures\u00a0<\/b><\/a><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"Fixed_Deposits\"><\/span><b>Fixed Deposits<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">On the interest earned on your<\/span><a href=\"https:\/\/goldenpi.com\/collections\/bonds-to-earn-monthly-fixed-income\"> <span style=\"font-weight: 400;\">fixed income<\/span><\/a><span style=\"font-weight: 400;\">, there is some tax levied but it has some intricacies that you need to understand as to how your FDs are generally taxed.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">When you earn interest on a<\/span><a href=\"https:\/\/goldenpi.com\/corporate-fixed-deposits\"> <span style=\"font-weight: 400;\">fixed deposit<\/span><\/a><span style=\"font-weight: 400;\">, the Income Tax Act of 1961 considers it as income from other sources and fully taxable. The bank adds the interest earnings to your total annual income, and you&#8217;re liable to<\/span><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/why-do-you-pay-taxes\/\"> <span style=\"font-weight: 400;\">pay taxes<\/span><\/a><span style=\"font-weight: 400;\"> according to the current tax laws.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As per Budget 25-26<\/span><span style=\"font-weight: 400;\">, if your fixed deposit interest exceeds Rs 50,000, you&#8217;ll be subject to TDS (tax deducted at source). PAN holders will pay a 10% tax, and non-PAN holders will pay a 20% tax on the interest earned. For senior citizens, the interest limit is up to Rs 1,00,000 and only if it exceeds the amount, it&#8217;ll be taxed accordingly depending on whether them being a PAN or Non-PAN holders.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, the Rs 50,000 limit applies to each fixed deposit separately and not to the aggregate interest earned. The bank deducts TDS on the interest earned every year to distribute the burden of tax payments.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Note that TDS isn&#8217;t the total tax liability, but only a part of it. The total tax on your fixed deposit interest is calculated based on your income tax slab for that financial year. If your total income is below the tax slab threshold of Rs 2,50,000, you don&#8217;t need to pay any tax, and no TDS will be deducted.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, to be eligible for this exemption, you must submit form 15H or 15G (depending on age and income) to instruct the bank not to deduct TDS.<\/span><\/p>\n<h4 style=\"text-align: center;\"><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/its-time-to-break-the-bank-fd-habit\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Debt_Instrument_Taxes\"><b>It\u2019s time to break the Bank FD habit<\/b><\/a><\/h4>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Debt_Mutual_Funds\"><\/span><b>Debt Mutual Funds\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The taxation on Debts Mutual Funds considers various aspects such as dividends, and capital gains.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The dividends are taken into account as taxable income and are charged as per the individual\u2019s tax slab rate. <\/span><span style=\"font-weight: 400;\">For debt mutual funds purchased on or after <\/span><b>1 April 2023<\/b><span style=\"font-weight: 400;\">, capital gains are <\/span><b>taxed as per the investor\u2019s income tax slab rate regardless of the holding period<\/b><span style=\"font-weight: 400;\">.<\/span> <span style=\"font-weight: 400;\">The earlier long-term <\/span><a href=\"https:\/\/goldenpi.com\/collections\/bonds-for-short-term-investment\"><span style=\"font-weight: 400;\">capital gains<\/span><\/a><span style=\"font-weight: 400;\"> benefit with indexation is no longer applicable to these investments.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Public_Provident_Fund\"><\/span><b>Public Provident Fund\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The<\/span><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/fixed-income-securities-bonds-fds-ppf-bond-etf-which-one-to-choose\/\"> <span style=\"font-weight: 400;\">Public Provident Fund (PPF)<\/span><\/a><span style=\"font-weight: 400;\"> was introduced in India in 1968 to gather modest contributions for investment and returns. This fund serves as an investment instrument that facilitates the accumulation of retirement savings while simultaneously reducing yearly tax obligations.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Public Provident Fund (PPF) is a type of investment that falls under the Exempt-Exempt-Exempt (EEE) category. This means that any contributions made to the PPF are tax-deductible under Section 80C of the Income Tax Act, up to a maximum of Rs.1.5 lakh per financial year.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, the accumulated amount and interest earned on the PPF investment are also tax-exempt when withdrawn. It is worth noting that a PPF account cannot be closed before its maturity date.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, a PPF account can be transferred from one designated point to another. Nevertheless, it is important to remember that a PPF account cannot be closed before maturity except in the case of the account holder&#8217;s demise, where the nominee can apply for account closure.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Wrapping_up\"><\/span><b>Wrapping up\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A perspicacious investor ought to have a comprehensive understanding of the nuances pertaining to tax implications prior to initiating any investment endeavor. It is incumbent upon investors to not merely focus on the returns or interest accrued, but to equally account for the tax liabilities and subsequent financial responsibilities that accompany investment pursuits.<\/span><\/p>\n<h4 style=\"text-align: center;\"><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/money-matters-whos-pulling-the-strings-of-indias-monetary-policy\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Debt_Instrument_Taxes\"><b>Who\u2019s pulling the strings of India\u2019s Monetary Policy?<\/b><\/a><\/h4>\n<p><strong>Disclaimer:<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The financial landscape is replete with a plethora of investment instruments, each promising lucrative returns. Nevertheless, tax implications loom large and cannot&hellip;<\/p>\n","protected":false},"author":4,"featured_media":12458,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"categories":[24],"tags":[18,59,135,136,137],"class_list":["post-5848","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bond-market","tag-bonds","tag-fixed-deposits","tag-debt-instrument","tag-debentures","tag-mutual-funds"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How are different debt instruments taxed?<\/title>\n<meta name=\"description\" content=\"Learn how various debt instruments such as bonds, loans, and mortgages are taxed and understand the implications for investors. Our guide covers the basics of debt taxation and important considerations to help you make informed investment decisions. Read now\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/how-are-different-debt-instruments-taxed\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How are different debt instruments taxed?\" \/>\n<meta property=\"og:description\" content=\"Learn how various debt instruments such as bonds, loans, and mortgages are taxed and understand the implications for investors. Our guide covers the basics of debt taxation and important considerations to help you make informed investment decisions. 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