Income Tax Department notifies tax exemption on NDB’s Maharaja Bonds

Income Tax Department has notified tax exemption on interest earned from ‘Maharaja Bond’, issued by New Development Bank. Meanwhile, the department has also introduced a new form for exemption on government securities for Foreign Institutional Investors (FIIs).

Tax exemption for Maharaja Bond interest

In a notification, the department said that “no deduction of tax shall be made under section 393(1) of the Income Tax Act on payment in the nature of interest, made by the New Development Bank to such person being holder of the Maharaja INR Bonds issued by the New Development Bank during the tax year 2026-27 and subsequent tax years.” Here, holder means a resident or a Foreign Institutional Investor. The New Development Bank will be required to furnish information.

“This notification shall come into force on the date of its publication in the Official Gazette,” the department said, which is October 19, 2026. Maharaja Bond is a rupee-denominated bond just like Masala Bond. However, both are different. While a Maharaja Bond is an onshore rupee-denominated debt instrument, Masala Bond is a debt instrument issued by Indian entities in the international market but denominated in Indian rupees (INR), as opposed to the local currency of the foreign market. They are named “masala” to reflect the Indian origin and cultural identity of the bond.

Maharaja Bonds and NDB’s local-currency financing plans

The present one by NDB is not the first Maharaja Bond. In 2014, IFC, a member of the World Bank Group, issued its first onshore rupee bond, better known as ‘the IFC Maharaja bonds.’

Earlier, the NDB’s annual report emphasised that, to achieve its operational priorities, it will mobilise resources at scale through a diversified suite of instruments, with a strong presence across international and local capital markets. Further, it said the Bank will continue to expand local-currency financing, which will help mitigate foreign exchange risks while supporting the development of domestic capital markets in member countries. In 2026, the Bank plans to expand into new markets, including issuing INR-denominated Maharaja bonds in India. The Bank will work vigorously to sustain its 30 per cent local currency financing goal, the report added.

NDB plans $7.5 billion support for India

Later, in a social media post, Dilma Rousseff, President of the NDB, said that the bank plans to channel $7.5 billion into India over five years, stepping up local-currency financing to give emerging economies more options beyond dollar-denominated funding. The proposed support includes $5 billion in sovereign lending and a planned $2.5 billion-equivalent rupee bond programme (around ₹25,000 crore). The bond will be issued with support from the Government of India and RBI. This initiative will further solidify the Bank’s local currency financing franchise and support India’s financial sovereignty.

Established in 2015 by BRICS countries, NDB is a multilateral development bank that mobilises resources for developing countries’ infrastructure and sustainable development projects in BRICS and other EMDCs (Emerging Market and Developing Countries).

New Form 173A for exemption on government securities

Meanwhile, in a separate move, the Income Tax Department has 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. Retrospective from April 1, the move replaces the previous regime where short-term capital gains were taxed at 30 per cent and long-term capital gains on sovereign securities stood at 12.5 per cent for G Sec investment. The additional requirements aim to streamline the process for eligible investors and organisations.