The tax on a bond, worked out to the rupee

1Two kinds of bond income

Everything a bond pays you lands in one of two places: interest, or a capital gain or loss.

• There is no special allowance for bond interest like the old 80TTA and 80TTB, which (now section 153) cover deposits, not bonds. Ordinary deductions against interest income under s.93 still apply.
• Bonds get none of the breaks shares get: no ₹1.25 lakh exemption, no 20% short term rate and no indexation, even on bonds bought before 2024.
• Tax year means the financial year, so Tax Year 2026-27 runs from 1 April 2026 to 31 March 2027, and it is the first year under the Income-tax Act 2025.

The rate card for Tax Year 2026-27

The new regime's slabs are in the Act itself (s.202(1)), and apply unless you choose the old regime; the Finance Act 2026 sets the old regime's slabs, the surcharge and the cess.

The old regime is a choice you make each year in a return that is filed on time, and its slabs depend on your age.

Above ₹50 lakh of income a surcharge is added to the tax, and then the 4% cess is charged on the total. On the tax on a 12.5% gain the surcharge stops at 15%, however high your income is.

• The rebate (s.156). In the new regime, if your total income is ₹12 lakh or less, tax up to ₹60,000 is wiped out. Just above ₹12 lakh, marginal relief caps your tax at the amount by which your income passes ₹12 lakh (s.156(2)(b)); on income that is all at slab this is plain statute. The rebate never covers the tax on a 12.5% long term gain (s.156(3)). Two results of that carve out are not settled: how marginal relief works when your income holds a 12.5% gain, and that under ₹12 lakh a short term gain, taxed at slab and covered by the rebate, can cost less than a long term one. Both follow the words of the Act, neither has been tested, and both need a CA's review. contested The old regime gives up to ₹12,500 if total income is ₹5 lakh or less, and that can cover a 12.5% gain.
• The cess is 4% of the tax plus surcharge, in both regimes.
• Later years. The calculator assumes that the 2026-27 law stays the same for every later tax year, which is a modelling assumption and not the law.

A coupon is interest, taxed at your slab in the tax year it is paid. A gain or loss on a sale or a repayment is a capital gain or loss: 12.5% if the bond is listed and held over 12 months, else your slab.

2Listed or not, and how long you held

• Exactly 12 months is still short term. The count runs from the trade date on which you bought to the trade date on which you sold (CBDT Circulars 704 and 768), and if the bond is repaid at maturity, the repayment date is the end.
• A loss follows the same split, so it is either a long term loss or a short term loss.
• G-secs, SDLs and T-bills: the Act never says they are listed. They trade on NSE and BSE, and the Income Tax Department's pages treat them as 12 month assets, so the calculator does the same and flags it. If a G-sec were unlisted, there are two other readings: as a security that is not a "bond or debenture" it would need more than 24 months, and as an unlisted bond section 76 would make every gain short term. The G-sec tab works out all three.
• A notified zero coupon bond (s.2(112)) also uses the 12 month rule. G-sec STRIPS are not notified zero coupon bonds: the Government is not one of the issuers the definition names.

A listed bond held more than 12 months gives a long term gain at 12.5%, with no indexation; held 12 months or less, the gain is short term, at your slab. An unlisted bond or debenture sold or repaid from 23 July 2024 is always short term, and so is any market linked debenture.

3TDS

• 10% of the whole amount, once the interest from one payer in a tax year passes ₹10,000 (s.393(1) Table Sl. 5(i)). It is counted per payer, across all of the payer's bonds that you hold, and not per bond or per coupon, so ₹9,000 and then ₹2,000 from one issuer means TDS of ₹1,100.00.
• No TDS on any Central or State Government security: G-secs, SDLs, T-bills, STRIPS and SGBs (s.393(4) Table Sl. 6). The exceptions are the taxable savings bonds, such as the Floating Rate Savings Bonds 2020. Tax-free bonds have no TDS because the interest is exempt.
• No PAN: if the payer does not have your PAN, the rate is 20%.
• Who gets the credit: whoever holds the bond on the record date gets the whole coupon, the whole TDS and the whole line in AIS, even after holding for a week (s.390(5)).
• TDS is a prepayment, not your tax. At the 30% slab, a coupon that has had 10% TDS still owes 21.2% more. Because there is no TDS on government bonds, you pay advance tax yourself once your tax for the year, after any TDS, is ₹10,000 or more (s.404, s.405). A resident aged 60 or more with no business income pays none in advance (s.403(3)).

TDS is 10% once the interest from one payer passes ₹10,000 in a tax year, there is none on G-secs, SDLs, T-bills, STRIPS or SGBs, and it is a prepayment, not your tax.

4Losses: set off and carry forward

A capital loss never reduces the tax on a coupon (s.109(2)). It carries forward only if you file the return for the year of the loss on time, by 31 July (s.111, s.121). This is the rule that makes a premium bond cost money. The slab tax on every coupon is paid now. The premium comes back only as a capital loss, and that is worth something only if you later have gains for it to absorb.

A capital loss never reduces the tax on a coupon, and it carries forward only if you file the return for the year of the loss on time, by 31 July.

5Accrued interest: the seller's part of the price

Clean price, dirty price

Between two coupon dates, part of a bond's price is interest the seller has earned but not yet been paid. That part is the accrued interest. The clean price is the price of the bond without it, and the dirty price is the price with it.

• On the NSE and BSE capital market segment, which is what broker apps use, bonds trade at the dirty price (NSE/CMTR/39581 for G-secs; the exchanges' notes for corporate bonds). So the clean price is the screen price minus the accrued.
• On NDS-OM, RBI Retail Direct and the exchange RFQ platform, the quote is clean, and the accrued is a separate line on your note.

How the accrued is worked out

• The days run from the last coupon date to the settlement date (RBI G-sec FAQ Q22), and settlement is the next working day after the trade (T+1).
• How the days and the basis are counted depends on the bond's day count convention (section 6).
• Notes from NDS-OM and RBI Retail Direct round the accrued per ₹100 of a G-sec to 4 decimals. An exchange trade prints no accrued at all, so the page keeps the full precision.

Take 7.54% GS 2036 bought on 5 October 2026 at ₹104.67, which settles on 6 October 2026, 133 days after the last coupon when counted on 30E/360. The accrued is ₹2.785611 per ₹100. On 955 units, ₹2,660.26 of the ₹99,959.85 you pay is the seller's interest, and the bond itself costs ₹97,299.59.

Record dates and ex-interest

• The issuer pays the whole next coupon to whoever holds the bond on the record date.
• For corporate and PSU bonds the record date is usually 15 days before the payment, moved for holidays as the prospectus says. A G-sec trade is ex-interest when its T+1 settlement falls on or after the coupon date, so the price drops on trades made from the day before the coupon (NSE bhavcopies for 7.54% GS 2036, November 2025 and May 2026). For SGBs it is taken as one day before the payment, an estimate not confirmed by a notice. For T-bills and STRIPS, the RBI shuts the book for one day before the repayment.
• Your trade may settle after the record date but before the coupon. Then you buy ex-interest. The seller keeps the coupon, so the accrued is negative. You pay less, by the interest for the days still to run.
• So the exchange price drops by about one coupon on the record date. For example, the 7.64% IRFC 2031 bond traded at ₹1,148.14 on 29 September 2026 and ₹1,074.67 on 30 September 2026, against a ₹76.40 coupon (NSE bhavcopies).

Method A and Method B

You pay the seller some accrued. Weeks later the full coupon lands in your account. The issuer reports all of it as your interest. AIS shows all of it, and any TDS is on all of it. No law, rule or circular says how you should treat the accrued you paid. So two methods are in use.

The one ruleCount the accrued once. Either it comes off the coupon (B) or it sits in your cost (A), but never both. Over the whole holding the two methods give the same total income. They differ only in the bucket (interest at slab, or a capital gain) and in the year.

On the G-sec above, Method A taxes the whole ₹3,600.35 coupon of 23 November 2026, while Method B taxes ₹940.09 of it. At ₹30 lakh of other income that is ₹1,123.31 against ₹293.31 in 2026-27. Method A's extra ₹830.00 is paid now. The ₹2,660.26 of accrued comes back only inside a ₹4,459.85 long term capital loss in 2036. That is worth at most ₹345.83 (13%), and only if long term gains absorb it.

What is settled and what is not

One more rule belongs here: section 175(8) ignores a loss, up to the exempt income, if you buy within 3 months before a record date and sell within 3 months after, and the income is exempt. That is the tax-free bond round trip. An ordinary sale with no buy back is outside the other bond washing rules, so they do not touch a normal trade.

No law, rule or circular says how to treat the accrued you pay the seller. Method A, the default, puts it in your cost; Method B, which is contested, takes it off the first coupon. Count it once, never twice.

6Day count conventions

The accrued depends on how you count the days. India uses three conventions, and which one applies depends on the kind of bond.

30E/360: every month has 30 days

The 30E/360 convention assumes every month has 30 days and every year has 360 days.

• Y1, M1, D1: the year, month and day of the start date, the last coupon.
• Y2, M2, D2: the year, month and day of the end date, the settlement.

Step by step rules for counting. India uses the European version:

1. If D1 is 31, change it to 30.
2. If D2 is 31, change it to 30, whatever D1 is.
3. February is left alone, so the end of February is not moved to 30. That means 28 February to 1 March counts as 30 × 1 + (1 − 28) = 3 days, not 1.

Other versionsThe US version (30/360 US, the SIA rule) changes D2 only when D1 is 30 or 31, and moves the end of February to 30. ISDA's Bond Basis has that D1 and D2 rule without the February change. Indian G-secs, SDLs and SGBs do not use it (RBI FAQ; FIMMDA).

Practical calculation example: 15 January 2026 to 31 May 2026.

Against the actual number of days. On the calendar the same two dates are 136 days apart. Month by month:

The fractions side by side. 30E/360: 135 ÷ 360 = 0.3750. Actual/365: 136 ÷ 365 = 0.3726. Actual/Actual gives 136 ÷ 365 here too, because this coupon period has no 29 February. When the period holds one, Actual/Actual divides by 366.

What it does to the accrued. Take ₹1,00,000 of face at a 7.54% coupon, paid half yearly on 15 January and 15 July, with interest counted to 31 May. (This is an illustration: 31 May 2026 is a Sunday, so a real trade would settle on 1 June.) The calculator works out the accrued under each convention, for 2026 and for 2028, which is a leap year, so its coupon period holds 29 February.

In 2026, 30E/360 gives ₹18.08 more than the two actual conventions, because it counts February as 30 days. In 2028 the actual conventions split: the 366 day basis gives ₹7.73 less than Actual/365. T-bills and STRIPS have no coupon, so the row for them is only there to show the arithmetic: their Actual/365 count is used for the yield on the discount.

G-secs, SDLs and SGBs count days on 30E/360, listed corporate, PSU and tax-free bonds on Actual/Actual, and T-bills on Actual/365, so the same dates can give a different accrued.

7What goes in your return

• Interest goes in Schedule OS (income from other sources), at the full coupon that AIS shows. Tax-free interest goes in Schedule EI (exempt income), and any TDS is claimed against your tax.
• Gains and losses go in Schedule CG. The sale value is what you received less charges, and the cost is what you paid plus brokerage, GST and stamp duty (0.0001% on a corporate bond transfer; none on a government security). A listed bond's long term gain goes in the rows for gains "other than s.112A", at 12.5%, and a short term gain goes in the rows "other than s.111A", at slab.
• Method B puts the accrued paid as an expense against the interest (field 3a(i) of Schedule OS in the ITR-2 for FY 2025-26; check the form before you file).
• Which form. For FY 2025-26, filed in 2026 under the old Act, ITR-2 has these fields. The forms for Tax Year 2026-27, which will be filed in 2027 under the new Act, were not out on 5 October 2026, but the logic will be the same.
• File by 31 July if you have a capital loss to carry forward. The return rounds your total income and tax to the nearest ₹10 (s.516).
• Keep every contract note, because it is the only record of the price, the accrued and the dates.

Interest goes in Schedule OS at the full coupon AIS shows, gains and losses go in Schedule CG, and if you have a capital loss to carry forward, file by 31 July. Keep every contract note.

8Eight bonds, worked out

Each tab uses one real bond of its kind, with its real coupon dates, record dates and prices. Pick the day you buy: the price fills in from that day's trade, or a labelled model price if it did not trade, and you can type over it. Then choose to hold to maturity or to sell on a date. The regime and income you set below apply to every tab.