TDS on Bond and NCD Interest in India: The 2026 Rules
A lot of what's written online about TDS on bond interest is out of date. The most common outdated claim: that listed NCDs held in demat form are exempt from TDS. That exemption existed once — it was withdrawn effective 1 April 2023. Here's what actually governs TDS on your bond interest today, and why it's a different section of the Income Tax Act than most pages assume.
The governing rule: Section 193, not 194A
Interest paid on a bond, debenture, or NCD is legally "interest on securities" — and interest on securities is governed by Section 193 of the Income Tax Act, 1961. Section 194A, which several guides cite for NCD interest, actually covers interest other than interest on securities — bank fixed deposits, unsecured loans, and similar instruments. A bond or debenture, listed or unlisted, is a security. Section 193 applies to it.
This distinction matters practically less for the deducted amount (both sections currently land at similar rates and thresholds) but matters for understanding which exemptions and provisos actually apply to your bond — the exemptions written into Section 193 do not automatically carry over from 194A discussions you may have read elsewhere.
The exemption that no longer exists
Until 31 March 2023, a proviso to Section 193 exempted interest on any security issued by a company, where the security was held in dematerialized form and listed on a recognized stock exchange in India, from TDS entirely. This was a genuine, meaningful exemption — investors holding listed NCDs in demat received full interest with no deduction, and self-reported the income in their ITR.
The Finance Act 2023 withdrew this exemption, effective 1 April 2023. Since then, interest on listed dematerialized NCDs is subject to TDS under Section 193 just like any other security — the demat-and-listed combination no longer shields it. If you're reading a guide (including some still ranking well in search results) that describes listed demat NCDs as TDS-exempt, that information predates this change and no longer applies.
Current TDS rate and threshold
As of the applicable rules for FY 2025-26, TDS under Section 193 is deducted at:
- 10% if you have furnished a valid PAN to the issuer/registrar.
- 20% (or the rate applicable under Section 206AA) if no valid PAN is on file.
The threshold below which no TDS applies has moved over successive Finance Acts — historically ₹5,000 per financial year for debentures of a company in which the public is substantially interested, with a Budget 2025 change raising thresholds for several TDS provisions including this one. Because this figure has changed before and the exact threshold depends on your financial year, verify the current applicable threshold directly with your bond's registrar/RTA or a chartered accountant rather than relying on any single cited number, including this one.
Form 15G/15H: how to avoid TDS if you're below the taxable limit
If your total income is below the basic exemption limit, you can submit Form 15G (for individuals below 60) or Form 15H (for senior citizens) to declare that your income doesn't warrant TDS. This is submitted to the entity responsible for deducting TDS — typically the issuer, its registrar and transfer agent (RTA), or the depository participant handling your demat holding, depending on how the bond is structured.
Submit the form at the start of the financial year, or as soon as you acquire the bond, since it only prevents TDS on payments made after submission — it doesn't retroactively refund tax already deducted.
What determines your TDS — and what doesn't
The common mental model — "listed means no TDS, unlisted means TDS" — is the outdated one. What actually determines your TDS treatment today:
| Factor | Effect |
|---|---|
| Security type (bond/NCD/debenture) | Falls under Section 193 regardless of listed/unlisted status |
| Listed + demat (pre-April 2023 rule) | No longer exempt — TDS applies since 1 April 2023 |
| PAN furnished | 10% TDS rate |
| PAN not furnished | 20% (or Section 206AA rate) |
| Interest below the applicable threshold | No TDS — verify the current threshold for your FY |
| Valid Form 15G/15H on file | No TDS deducted going forward, if eligible |
If TDS was deducted — or wasn't, but should have been
TDS deducted on your bond interest shows up in Form 26AS and your Annual Information Statement (AIS) — reconcile this against the interest actually credited before filing your return. TDS deducted is a credit against your final tax liability, not an additional tax; if your actual tax liability (given your slab) is lower than the TDS deducted, you claim the difference as a refund when filing your ITR.
Key takeaways
- Bond and NCD interest TDS is governed by Section 193 (interest on securities), not Section 194A.
- The pre-2023 exemption for listed dematerialized securities was withdrawn effective 1 April 2023 — listed demat NCDs are not automatically TDS-exempt today.
- Current rates are 10% with PAN, 20% without — but the exact threshold below which TDS doesn't apply has changed across Finance Acts, so verify the figure for your specific financial year rather than treating any single cited number as permanent.
- Form 15G/15H can prevent TDS deduction going forward if your income is below the taxable threshold — submit it to the issuer/RTA proactively.
Related reading: How bonds are taxed in India · Secured vs unsecured NCDs · Browse bonds on the screener →