Tax Free Bonds in India 2026

Tax-Free Bonds are bonds where the interest income is fully exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act. The issuer pays you a coupon every year, and you keep all of it without paying any tax on the interest.

These bonds were issued by select government-backed entities like NHAI, REC, PFC, IRFC, HUDCO, NABARD, IREDA, NTPC, and NHPC, primarily between FY 2011-12 and FY 2015-16. As of June 2026, no new issues have come out since FY 2015-16, but the older series continue to trade on the secondary market.

GoldenPi, which is a SEBI-registered Online Bond Platform, lists what's available in this category from the secondary market. KYC, payment, and demat sit in one place.

What are Tax Free Bonds?

Tax-free bonds are debt securities where the annual interest paid to the bondholder is fully exempt from income tax. The exemption comes from Section 10(15)(iv)(h) of the Income Tax Act, which lets specified government-backed entities issue bonds whose interest is not taxable. These are also called Section 10 15 bonds in the market.

The issuers were notified by the central government. Major names include NHAI (National Highways Authority of India), REC (Rural Electrification Corporation), PFC (Power Finance Corporation), IRFC (Indian Railway Finance Corporation), HUDCO and NABARD, to name a few.

How Does Tax Exemption Work?

The mechanics are simple. When the issuer pays the annual coupon, the entire amount is exempt from income tax. No TDS is deducted at source either. This is different from regular bonds, where interest is added to your income and taxed at your slab rate.

A bond paying 7% gives you a tax-exempt interest income of Rs. 7,000 on a Rs. 1 lakh investment. For an investor in the 30% tax slab, this is equivalent to a pre-tax yield of 10% from a taxable bond (because 10% would shrink to 7% after 30% tax).

Note: The tax exemption applies only to the interest income. Any capital gain on selling the bond in the secondary market is taxable, the same as any other listed bond.

Common Tax-Free Bond Issuers

Tax-free bonds in India were issued by several government-owned entities and public sector undertakings (PSUs), including the following issuers:

Issuer	About
NHAI	Builds and maintains national highways
REC	Lends to power and infrastructure projects
PFC	Finances the power sector
IRFC	Finances Indian Railways
HUDCO	Lends to housing and urban infrastructure
NABARD	Lends to rural and agricultural development
IREDA	Finances renewable energy and energy efficiency projects
NTPC	India's largest power generation company
NHPC	Develops and operates hydroelectric and renewable power projects
AAI	Develops, manages and operates airports and air navigation infrastructure

NHAI bonds' secondary market trading is the most active in this group. REC tax-free bonds are also commonly available. Coupons on these older series sit between 7% and 9%. Some issues paid retail investors 0.5% more than what was paid to large institutional buyers.

A Simple Example

Suppose you buy a Rs. 100,000 face value NHAI bond at a 7.5% coupon in the secondary market. Each year, you receive Rs. 7,500 as interest, fully exempt from tax. No TDS is applied.

If you hold the bond for 8 years to maturity, you receive Rs. 60,000 in interest, fully exempt from tax, plus your Rs. 100,000 principal at the end. For someone in the 30% tax bracket, the post-tax equivalent of this stream is significantly higher than a taxable bond paying the same headline rate.

Risks to Understand

Even with government backing, three risks to keep in mind:

1. Liquidity risk. Not every tax-free bond series trades actively. Some have thin volumes, and exiting at a fair price can take time.
2. Interest rate risk. Most of these bonds have long tenures (10 to 20 years from issue). When market interest rates rise, the resale price of the bond falls. This matters if you sell before maturity.
3. Capital gain taxation. While the interest is exempt, any capital gain on sale is taxable. This affects post-tax returns if you don't hold to maturity.

How to Invest on GoldenPi

GoldenPi is a SEBI-registered Online Bond Platform Provider. The steps:

1. Log in to your KYC-verified account.
2. Open the Tax Free Bonds section.
3. Filter by issuer, coupon, yield-to-maturity, or maturity date.
4. Read the bond details and the listing information.
5. Pay through NEFT or RTGS from your bank account.

The bond enters your demat after settlement.
Note: New issues have not come out since FY 2015-16. The bonds available are existing series being bought and sold in the secondary market.

Taxation

The interest from these bonds is exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act. No TDS applies to the interest.

The capital gain on sale is taxable. If sold within 12 months, the gain is taxed at a slab. Beyond 12 months, the long-term capital gain on a listed bond is taxed at 12.5% without indexation under the Finance (No. 2) Act, 2024.

Conclusion

These bonds give investors a coupon stream that is fully exempt from income tax. The structure is most useful for investors in higher tax slabs, where the exemption translates into a meaningful pre-tax equivalent yield. NHAI bonds, secondary market trading, REC tax-free bonds, and bonds from PFC, IRFC and HUDCO are some of the main names available in the secondary market.

The category has not seen new issues since FY 2015-16, so the supply is limited to existing series. Investors looking to enter typically buy on the secondary market, where prices depend on prevailing yields and the bond's remaining tenure.

GoldenPi keeps the listings updated. Live YTMs (yield-to-maturity), coupons, and maturity dates reflect the current state of each bond in the secondary market.