What is the Taxation of Bonds in India?

The taxation of bonds provides the opportunity to lend money from the government or companies in exchange for the return of their primary investments or interest payments. It works as a fixed income source and provides good financial stability. 

The issuer can be any company or government that lends the money to the investors who have purchased the bonds. 

The common name for the taxation bonds is the fixed-term instruments. If you have invested in the taxation bonds, you will get the forms of income, which are interest income and capital gain/loss. 

What are the Types of Taxation Bonds? 

Here are the following types of bonds in Indian given below: 

1. Taxable Bonds: This bond is subject to taxation, which is denied through the investor's income slab. When you sell these bonds at a higher price than the actual, then you will get capital gains/losses. The capital of these bonds is of two types. Listed and unlisted. You can hold listed bonds for more than 12 months.
2. Tax Savings Bonds: These bonds provide special tax benefits to investors who want to lower their tax burden and save taxes. Additionally, tax bonds are exempt from repayment.   
3. Tax-free bonds: Tax-free bonds are one of the safest and secure options that provide investors to get a fixed interest each year. With tax-free bonds, investors can save a lot of money because they are tax-free, making them a perfect choice for investors to get a longer-term investment with low risk. 
4. Zero-Coupon Bonds: The zero-coupon bonds are issued at a discount rate with face value and traded with full maturity. The interest generated on a bond is known as the coupon. When these zero-coupon bonds are held for more than 12 months, they are termed as long-term capital gains, and if they are held for less than 12 months, then they will be termed as short-term capital gains. 

TDS on Bonds 

According to Section 193 of the Income Tax Act, 1961, all the interest which is generated on the bonds is subject to the TDS tax deducted at source. It will be deducted at the rate of 10% for all the listed and unlisted bonds.