← All fixed-income sectionsWhat it is
A corporate bond is a debt instrument issued by a company or financial institution. The issuer promises coupon payments and repayment at maturity. NCDs are a common type of non-convertible corporate debt; “corporate bond” is the broader category.
IssuerCompany / financial institution
ReturnCoupon plus possible price gain/loss
Typical useDefined maturity + tradable debt exposure
Key checkIssuer balance sheet + rating + maturity
What can go wrong
- Credit risk is tied to the issuer’s ability to meet obligations.
- Interest-rate changes can move market prices before maturity.
- Lower-liquidity bonds may require a discount if you need to exit early.
Tax in India
- Coupon/interest is generally included in taxable income at applicable slab rates.
- For listed bonds transferred after the long-term holding threshold, LTCG is generally 12.5% without indexation under current rules.
- Unlisted bonds/debentures can fall under special short-term treatment on transfer, redemption or maturity; verify the security’s exact legal form before relying on a capital-gain rate.
What the example below measures
The example below focuses on the tax increase caused by this instrument’s return for people starting with ₹6 lakh, ₹12 lakh or ₹50 lakh of normal taxable income. It does not treat TDS as final tax.
Corporate bond tax: what happens to a ₹6L, ₹12L or ₹50L income person?
This is an instrument-specific illustration, not the same generic tax chart repeated on every page.
Example used on this page: Assume ₹5,00,000 invested in a corporate bond paying an illustrative 8.0% annual coupon → ₹40,000 coupon income. Existing income below means normal taxable income before this investment return is added. Assumes a resident individual, no special-rate income, and includes 4% Health & Education Cess.
Existing taxable income before Corporate bond return₹6,00,000
After adding return: ₹6,40,000
Income becomes ₹6,40,000. Because normal-rate total income is still within ₹12 lakh, the available resident-individual rebate can keep final tax at nil in this simplified example.
Existing taxable income before Corporate bond return₹12,00,000
After adding return: ₹12,40,000
Income becomes ₹12,40,000. ₹12 lakh is exactly the rebate cut-off. Marginal relief limits the sudden tax jump; 4% cess is then added. This is a threshold effect, not a normal 104% tax rate.
Existing taxable income before Corporate bond return₹50,00,000
After adding return: ₹50,40,000
Income becomes ₹50,40,000. ₹50 lakh is exactly the surcharge threshold. Marginal relief reduces the surcharge jump just above ₹50 lakh; 4% cess is then added.
Why the ₹12L and ₹50L examples can look surprising: both people start exactly on a tax boundary before the Corporate bond return is added. At ₹12 lakh, the 87A rebate boundary is crossed; at ₹50 lakh, the surcharge boundary is crossed. Marginal relief softens each jump, but 4% cess still applies. A person whose total income is comfortably inside a slab will normally see a much more familiar marginal tax effect. These cards are designed around your exact “₹6L / ₹12L / ₹50L income person then invests” question.
The cards below show tax on coupon income only. A sale can create a separate capital gain/loss. For listed bonds transferred after the long-term threshold, LTCG is generally 12.5% without indexation under current law; unlisted bonds/debentures have special section 50AA treatment.
Tax & bond words — explained simply
No jargon without meaning. These are the terms used on this Corporate bond page.
CouponPeriodic interest paid by the bond issuer, usually stated as a percentage of face value.
Yield to Maturity (YTM)An annualised return estimate if you buy at the current price, receive scheduled cash flows and hold until maturity, assuming promised payments are made.
Credit spreadExtra yield over a comparable government security that compensates investors for credit/liquidity risk.
Capital gainProfit on sale/redemption compared with the tax cost of the bond.
LTCG / STCGLong-Term / Short-Term Capital Gain. Listed bonds generally use a 12-month long-term threshold for transfers on/after 23 July 2024; unlisted bonds can have special short-term treatment.
IndexationInflation adjustment to acquisition cost. It is not available for current listed-bond LTCG on transfers on/after 23 July 2024; the general listed-bond LTCG rate is 12.5% without indexation.
Official references
Use the current issuer document and current law before investing. These links are starting points for verification.
Educational illustration, not tax or investment advice. Tax depends on residential status, tax regime, age, deductions, special-rate income, acquisition price, holding period, listing status and changes in law. “Fixed income” does not mean every instrument is guaranteed or liquid.
