No tax deducted on interest from NDB's Maharajah rupee bonds
The Centre has notified that the New Development Bank need not deduct tax at source on interest it pays holders of its Maharajah INR Bonds. The Central Board of Direct Taxes notification of 19 October 2026, under the Income-tax Act, 2025, covers resident holders and Foreign Institutional Investors for the tax year 2026-27 and later years.
Syllabus: GS3 · Indian Economy & Growth; Prelims · Current Affairs & IR; GS2 · Groupings & Agreements
Why this matters for UPSC
GS3 economy (mobilisation of resources, bond markets) and GS2 international institutions. Prelims can ask what the New Development Bank is and where it sits, and how Masala and Maharajah bonds differ; Mains, about local-currency finance.
Why it matters
A bank, pension fund or insurer in India that buys the New Development Bank's rupee bonds will now get its interest in full, without part of it held back as tax and claimed later through a return. That change should make the bonds easier to sell, and a bank that can borrow cheaply in rupees can lend in rupees. An Indian power or metro project that borrows in rupees and earns in rupees does not see its debt grow when the rupee weakens, as it would with a dollar loan. The step also deepens India's own bond market, and it shows how a multilateral lender of BRICS is moving away from dollar borrowing.
Prelims pointers
- Agreement on the New Development Bank, Article 2: membership is open to UN members, as borrowing or non-borrowing members.
- NDB regional offices: Africa Regional Center, Johannesburg (the first); Americas, Sao Paulo, with a sub-office in Brasilia; Eurasian, Moscow; India, GIFT City.
- NDB's first President was K.V. Kamath; the inaugural meeting of its Board of Governors was held on 7 July 2015.
- First Masala bonds: issued by the International Finance Corporation, a World Bank Group member, in London in November 2014.
- RBI's framework for rupee-denominated bonds issued overseas sits within its External Commercial Borrowing policy.
- Masala bonds are settled in US dollars, because of the rupee's limited convertibility, though they are pegged to the rupee.
- Samurai bond: a yen bond issued in Tokyo by a non-Japanese company; a dim sum bond is issued outside China in Chinese currency.
Practise a UPSC-style question
With reference to the Central Board of Direct Taxes notification of October 2026 on the New Development Bank's Maharajah INR Bonds, consider the following statements:
1. It lets the New Development Bank pay interest on these bonds to resident holders and Foreign Institutional Investors without deducting tax at source.
2. It was issued under the Income-tax Act, 1961, using that Act's power to exempt payments from deduction.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Show the answer
Answer: (a) 1 only
Answer: (a) 1 only. The notification removes tax deduction at source on the interest, and it rests on the Income-tax Act, 2025.
Statement 1: correct. Notification No. 136/2026 says no tax is to be deducted under section 393 on interest the New Development Bank pays to a resident or a Foreign Institutional Investor holding the bonds.
Statement 2: incorrect. It was issued under section 400(1) of the Income-tax Act, 2025 (30 of 2025), and covers the tax year 2026-27 and later years.
Eliminate: Statement 1 is the news itself: no deduction at source for residents and FIIs. Out: (b), (d).
Eliminate: Statement 2 names the 1961 Act, but the notification cites the Income-tax Act, 2025. Out: (c).
Trap: Outdated fact. Students expect the familiar 1961 Act, but this notification cites the Income-tax Act, 2025 and its own sections, 400(1) and 393.
Remember: NDB Maharajah bond interest: no TDS, section 400(1) of the Income-tax Act, 2025.
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