Corporate Bond Taxation in India: How Are Returns Taxed?

Published: 7 November 2025

Investing in corporate bonds can give you a steady income and help balance your investment portfolio. But before you invest, it is important to understand how the returns from corporate bonds are taxed in India.

Let's explore what corporate bond taxation is. You can know the tax on interest, tax deducted at source and how capital gains are treated for listed and unlisted bonds.

What Is Corporate Bond Taxation?

Corporate bond taxation means the tax you pay on the money you get from corporate bonds. When you invest in these, you get interest. You may also get a profit when you sell them. Both are taxable. You pay tax on interest as per your income slab and profits are taxed as capital gains. Knowing this helps you plan and save more.

How Interest from Corporate Bonds is Taxed?

Earning interest from a corporate bond counts as part of your total taxable income. The amount of tax you pay on it depends on the income tax slab you fall under.

In most cases, the payer will deduct tax at source before paying you. Under the Income Tax Act, TDS on interest from bonds is generally applied at 10%. If you do not furnish your PAN, higher TDS rates may apply.

What this means:

The interest you get is taxed as regular income in the same year you receive it.
TDS reduces the cash you receive up front. You can claim the TDS credit when you file your return.
If your slab rate is lower than the TDS deducted, you can claim a refund. If your slab is higher, you pay the balance tax.

Short-term vs Long-term Capital Gains on Corporate Bonds

When you sell a bond, any profit is a capital gain. How it is taxed depends on whether the bond is listed and your holding period.

1. Listed corporate bonds

Gains on transfer of listed securities are treated as capital gains. Recent tax rules have changed how short-term and long-term periods are calculated. Check your buy and sell dates carefully. The LTCG rate is now more standard for many assets, but it still depends on what you own. Always confirm the latest tax rate for your case.

2. Unlisted corporate bonds

When you sell unlisted bonds, your profit is treated as a short-term gain. You will be taxed on it as per your normal income tax rate. This is an important distinction because it can increase your tax liability.

What this means:

If you hold listed bonds and meet the long-term holding condition, you may get the lower LTCG treatment, subject to prevailing law.
For unlisted bonds, plan for higher tax on gains because they can be taxed as short-term even after long holdings.
Tax law has changed in recent years. Before you sell, see if any new rules change the tax rate or benefits.

Tax Rules for Listed and Unlisted Corporate Bonds

Here is what you should know about tax on corporate bonds:

Return type	Listed bonds	Unlisted bonds
Interest income	Taxed at your slab; TDS normally 10% at source	Taxed at your slab; TDS normally 10% at source
Capital gains - short-term	Taxed at your slab if holding period is short	Often treated as short-term and taxed at your slab irrespective of holding period
Capital gains - long-term	LTCG rules may apply if the holding period condition is met; check the current LTCG rate	Generally not applicable; transfers may remain short-term
TDS	10% on interest (subject to PAN/Aadhaar and thresholds)	10% on interest (subject to PAN/Aadhaar and thresholds)

Steps You Should Take

Check the bond type: Know whether it is listed or unlisted. That affects capital-gains tax.
Confirm TDS and keep records: Ask the issuer or platform whether TDS will be deducted. You should also get Form 26AS credit when you file.
Plan for taxes when you sell: If you are selling an unlisted bond, assume gains may be taxed as short-term unless clearly stated otherwise.
Consider holding to maturity: If you hold to maturity you avoid market price volatility, but interest remains taxable each year.
Professional advice for large sums: Tax rules change and some changes in recent budgets affect capital gains. If your portfolio is large, speak to a tax adviser.

Summarising

Knowing corporate bond taxation helps you plan better. You should understand how are corporate bonds taxed. It can help you make smart investment choices and manage your taxes easily. It also lets you know when to sell and how to report your income.

You can also avoid surprises during tax time. It will help you stay on the safe side with the rules. When you know this well, you get more from your investments.

Also Read:
- Types of Corporate Bonds in India & How to Choose the Right One
- List of Best AAA-Rated Corporate Bonds in India 2025

Frequently Asked Questions

How are corporate bonds taxed in India? +

You pay tax on the interest you get from corporate bonds as regular income. The company usually cuts 10% TDS. Tax on profits depends on how long you hold the bond and if it is listed or not. So you should always check the latest tax rules before you make a choice.

What is the tax on interest income from corporate bonds? +

The interest you get is added to your income. It is also taxed as per your tax slab. If your actual tax is less, you can ask for a refund when you get your return.

How is LTCG/STCG on corporate bonds calculated? +

If you sell listed bonds, your profit is short-term or long-term. They are based on how long you held them. For unlisted bonds, your profit is usually short-term and taxed on your income tax slab. So always check the latest updates because they keep changing.

Are listed and unlisted corporate bonds taxed differently? +

Yes. If you hold listed bonds for a long time, you may get long-term benefits. But if your bonds are unlisted, your gain is taxed as short-term. You get this at your regular income tax rate. This makes the distinction important when you plan your investment horizon.

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Anjali Singh Assistant Manager

Hey there, I'm Anjali Singh. With over 6 years of experience in finance, I specialize in creating content on banking, loans, and financial planning. My goal is to simplify complex financial topics and help readers make informed decisions through my articles.