Maharajah Bonds gain investor appeal with TDS exemption

The Central Board of Direct Taxes has announced that interest paid to eligible Maharajah Bond holders will not be subject to tax deduction at source from financial year 2026-27. The exemption will also apply in subsequent tax years.

Exemption Covers Key Investor Groups

In a notification dated October 19, the CBDT said the TDS exemption applies to both residents and foreign institutional investors holding eligible bonds. This sets out the tax treatment for interest payments made to those bondholders during the specified period.

What the Notification Means

The decision removes the requirement to deduct tax at source from interest paid to eligible bondholders. The measure is relevant to investors receiving interest from Maharajah Bonds, as well as entities responsible for making those payments.

The exemption begins in FY 2026-27 and remains applicable in later tax years, according to the notification. No further details on the value of the bonds, the number of investors affected or the broader market response were provided.

Outlook

For eligible residents and foreign institutional investors, the notification clarifies that interest payments on the covered bonds will be made without TDS from the stated financial year onward. Its effect is limited to the bondholders and interest payments covered by the CBDT notification.