Income Tax Department notifies tax exemption on interest from New Development Bank's Maharaja Bonds

Key facts

• The Income Tax Department has notified exemption of tax on interest earned from Maharaja Bonds issued by the New Development Bank (NDB), covering resident Indians and Foreign Institutional Investors (FIIs) for tax year 2026-27 and subsequent years.
• The notification came into force on October 19, 2026, the date of its publication in the Official Gazette.
• Maharaja Bond is an onshore rupee-denominated debt instrument, unlike Masala Bonds which are issued by Indian entities in international markets but denominated in rupees.
• The first Maharaja Bond was issued in 2014 by the International Finance Corporation (IFC), a member of the World Bank Group.
• NDB President Dilma Rousseff announced plans to channel $7.5 billion into India over five years, including $5 billion in sovereign lending and a planned $2.5 billion-equivalent (around ₹25,000 crore) rupee bond programme.
• The NDB bond issuance will be supported by the Government of India and the Reserve Bank of India (RBI).
• NDB, established in 2015 by BRICS countries, is a multilateral development bank funding infrastructure and sustainable development in BRICS and other Emerging Market and Developing Countries.
• The Income Tax Department notified a new Form 173A for FIIs, overseas investors and the Bank for International Settlements (BIS) to claim exemption from capital gains tax on interest and trading gains from government bonds, effective retrospectively from April 1.
• Under the previous regime, short-term capital gains on government securities were taxed at 30 per cent and long-term capital gains at 12.5 per cent.