The Central Government has exempted interest payments on Maharaja INR Bonds issued by the New Development Bank (NDB) from Tax Deducted at Source (TDS), offering relief to eligible investors from the 2026–27 tax year onwards. The decision was announced through a notification issued by the Ministry of Finance on October 19, 2026.
The exemption applies to eligible Indian residents and foreign institutional investors holding these bonds. However, the relief is limited to TDS and does not automatically make the interest income tax-free.
What Are Maharaja Bonds?
Maharaja Bonds are financial instruments issued in India by the New Development Bank to raise money in Indian rupees. The bank was established by the BRICS countries — Brazil, Russia, India, China and South Africa — to support infrastructure and sustainable development projects.
In simple terms, the bank borrows money from investors by issuing bonds and pays interest according to the agreed terms. The funds raised can support infrastructure development, green energy and other eligible projects in India.
Unlike Masala Bonds, which are issued in overseas markets, Maharaja Bonds are issued in India’s domestic market and denominated in Indian rupees.
What Has the Government Changed?
Under the latest notification, eligible bondholders will receive interest payments without TDS being deducted at source. This means investors can receive the full interest amount when it is paid, rather than having a portion withheld in advance as tax.The move could improve cash flow for investors and make these bonds more attractive to domestic institutional investors. However, investors must still follow applicable income tax rules and report taxable interest income where required.
Why Are Maharaja Bonds Important?
The bonds are part of the New Development Bank’s efforts to raise funds in local currencies and strengthen India’s domestic financial market. Raising money in rupees can also reduce currency-related risks associated with borrowing in foreign currencies.The bank has proposed raising ₹25,000 crore through Maharaja Bonds over five years. The funds are intended to support its financing activities, including infrastructure, green and social development projects in India.
In August 2026, the Insurance Regulatory and Development Authority of India (IRDAI) allowed insurance companies to invest in these bonds, subject to applicable regulations. This could widen the pool of institutional investors available to the bank.
Does the TDS Exemption Mean Interest Is Tax-Free?
No. TDS is the tax deducted before an income payment reaches the recipient. Removing TDS means eligible investors receive their interest without this advance deduction, but it does not necessarily remove their final income tax liability.Resident investors must consider the interest income while calculating their tax liability under the applicable provisions. Therefore, the exemption should not be confused with a complete tax exemption.The government’s decision provides greater flexibility in receiving interest payments and could support the development of rupee-denominated bond markets in India. Its broader impact will depend on investor demand and the New Development Bank’s fundraising and lending plans.
