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What are Tax Free Bonds and how do they work?


Public sector undertakings or the central government issues Tax-Free Bonds in a bid to raise funds for various projects. These bonds offer a fixed income in the form of interest income and entail minimal risk. When an investor chooses to purchase Tax Free Bonds, they can enjoy tax exemption on the interest payment received for the bonds. However, when they choose to sell Tax Free Bonds they attract capital gain tax.