The Central Board of Direct Taxes has given the New Development Bank's maiden onshore rupee bond programme a clean tax-collection runway. In Notification No. 136/2026 [S.O. 5694(E)], issued on 19 October 2026 and published in the Gazette of India (Extraordinary), the CBDT has said that no tax shall be deducted at source on interest paid by the New Development Bank to holders of its Maharajah INR Bonds issued during tax year 2026-27 and subsequent tax years.
The notification is short — four operative clauses — but it clears one of the first practical hurdles in front of NDB's reported plan to raise around ₹25,000 crore through Maharajah Bonds over the next five years for infrastructure, green and social projects in India. For investors, the headline is simple: coupon payments arrive without TDS being shaved off at source. But the fine print matters, and one misconception needs to be killed at the outset — this is a TDS exemption, not an income-tax exemption. The interest itself remains taxable in the holder's hands.
The notification at a glance
- Instrument: CBDT Notification No. 136/2026 [S.O. 5694(E)], dated 19 October 2026
- Gazette: Gazette of India, Extraordinary No. 5477, Regd. CG-DL-E-19102026-277283 (Part II, Section 3, Sub-section (ii))
- Legal power: Section 400(1), Income-tax Act, 2025 (30 of 2025)
- TDS provisions disapplied: Section 393(1) [Table Sl. No. 5] and Section 393(2) [Table Sl. No. 17]
- Effective: From the date of Gazette publication — 19 October 2026
What changed — the key provisions
The operative clause of the notification does one thing, and it does it precisely:
- No TDS under Section 393(1) [Table: Sl. No. 5] — the provision that would otherwise require tax to be deducted on interest payments to resident payees — or under Section 393(2) [Table: Sl. No. 17] — the corresponding provision for payments to non-residents — on interest paid by the New Development Bank to holders of the Maharajah INR Bonds.
- Scope is limited to bonds issued in tax year 2026-27 and subsequent tax years. Bonds issued before 1 April 2026 would not fall within the exemption window — a prospective-only design that matches a brand-new issuance programme.
- "Holder" is defined narrowly. Only two classes of holders qualify: (i) residents, and (ii) Foreign Institutional Investors as referred to in Section 210(6) of the Income-tax Act, 2025. If you fall outside these two categories, the exemption does not cover you.
- NDB gets a reporting obligation in return. Clause 3 requires the New Development Bank to furnish the information required under Schedule VII (Table: Sl. No. 49) of the Income-tax Act, 2025 read with the Income-tax Rules, 2026 — so the exemption comes with traceability.
- No new rule has been created. The notification does not insert or amend any provision of the Income-tax Rules, 2026; it only imposes the reporting obligation by reference to the existing Schedule VII and the existing Rules.
- Immediate effect. Clause 4 provides that the notification comes into force on the date of its publication in the Official Gazette — 19 October 2026.
Old position vs new position
⚠️ Do not confuse TDS exemption with tax exemption. This is the single most important point in the entire notification. Section 393 is the collection machinery of the Income-tax Act, 2025 — it decides whether tax is withheld before the money reaches you. Exemption from deduction at source means the interest arrives gross, without tax being cut at the payment stage. It does not exempt the interest from being taxed as income. Holders must still disclose the interest in their returns and pay tax on it at the applicable rates. If you are used to treating "exempt" as "tax-free", reset that reading — this notification is about cash-flow and withholding mechanics, not about the taxability of the income itself.
Who is affected
Resident investors. If you are a tax resident of India and you hold Maharajah INR Bonds issued during tax year 2026-27 or later, NDB will not deduct TDS under Section 393(1) [Table Sl. No. 5] when it pays you interest. You receive the full coupon and account for the tax yourself at filing time.
Foreign Institutional Investors. FIIs — as defined by reference to Section 210(6) of the Income-tax Act, 2025 — get the parallel benefit under Section 393(2) [Table Sl. No. 17]. For cross-border investors who would otherwise face withholding on Indian-source interest, this removes a friction point at the payment stage. (The notification itself fixes no rates and changes no treaty position; it simply switches off the TDS obligation for covered payments.)
The New Development Bank itself. As issuer and payer, NDB is the party relieved of the TDS deduction duty — but it picks up a new compliance item: furnishing the information required under Schedule VII (Table Sl. No. 49) of the Act in accordance with the Income-tax Rules, 2026.
Who is NOT covered. Anyone who is neither a resident nor an FII under Section 210(6) falls outside the notification's definition of "holder". And any Maharajah INR Bonds issued before tax year 2026-27 sit outside the time window entirely.
What to do next
If you are (or will be) a holder: nothing changes about your income-tax liability — but you should make sure your adviser and your return preparation process treat the coupon as interest income received without TDS. Expect no TDS credit for these interest receipts; plan your advance-tax and self-assessment calculations accordingly, since tax that was previously collected at source will now be payable by you directly.
If you advise FIIs or resident fixed-income investors: flag the prospective window (tax year 2026-27 onwards) and the two-holder limitation when clients consider the Maharajah Bond programme. The notification says nothing about TDS rates for uncovered categories — treat anything outside the stated scope as business as usual under Section 393.
If you track NDB's bond programme: this notification lands alongside the programme's groundwork. The New Development Bank — the multilateral lender set up by the BRICS countries in 2015 and headquartered in Shanghai — plans to raise around ₹25,000 crore through Maharajah Bonds over five years, with proceeds earmarked for general corporate purposes including onward lending to sustainable infrastructure, green and social projects in India. The bonds are onshore rupee-denominated instruments: issued and settled in INR within India's domestic markets, sold to local and foreign institutional investors — unlike Masala bonds, which are rupee-denominated but issued outside India. In August 2026, IRDAI disclosed it had received an NDB representation seeking permission for insurers to invest in Maharajah Bonds. Taken together, the picture is of a programme being methodically de-risked on the regulatory and tax-administration fronts.
Companion instrument, same Gazette week. On the same day — 19 October 2026 — the CBDT also issued Notification No. 137/2026, the Income-tax (Seventh Amendment) Rules, 2026, inserting Rule 281A and Form 173A (mandatory reporting for tax-exemption claims on interest and capital gains from government securities). That notification is covered in a separate analysis on this site. Note the contrast: the Form 173A instrument creates a new rule and a new form; the Maharajah Bonds instrument creates no new rule — it switches off two existing TDS provisions for a defined class of payments and binds NDB to existing reporting provisions.
FAQs
1. Does this notification make Maharajah Bond interest tax-free?
No. The notification exempts the interest from deduction of tax at source under Sections 393(1) and 393(2) of the Income-tax Act, 2025. The interest itself remains taxable income in the holder's hands. It is a withholding relief, not a tax exemption.
2. Who exactly qualifies as a "holder" under the notification?
Only two categories: (i) residents, and (ii) Foreign Institutional Investors as referred to in Section 210(6) of the Income-tax Act, 2025. Anyone outside these two categories does not qualify.
3. From when does the exemption apply?
The notification came into force on 19 October 2026, the date of its publication in the Official Gazette. It covers Maharajah INR Bonds issued during tax year 2026-27 and subsequent tax years — it is prospective only, and bonds issued before tax year 2026-27 are outside its scope.
4. What would have happened without this notification?
NDB would have been obliged to deduct tax at source on the interest — under Section 393(1) [Table Sl. No. 5] for resident payees and Section 393(2) [Table Sl. No. 17] for non-resident/FII payees. The notification switches off both provisions for the covered bonds, so coupons are paid gross.
5. Does the notification insert a new rule in the Income-tax Rules, 2026?
No. Unlike its companion instrument (Notification No. 137/2026, which inserts Rule 281A and Form 173A), this notification creates no new rule and amends none. It only requires the New Development Bank to furnish information as already required under Schedule VII (Table: Sl. No. 49) of the Act and the existing Income-tax Rules, 2026.
6. If no TDS is deducted, do I still report the interest in my tax return?
Yes. Because this is a TDS exemption and not an income-tax exemption, the interest remains fully taxable. Holders must disclose it in their returns and pay tax at the applicable rates, factoring it into advance-tax and self-assessment computations.
7. Where can I read the official notification?
The official e-Gazette PDF is Notification No. 136/2026 [S.O. 5694(E)], Gazette of India Extraordinary No. 5477 (Regd. CG-DL-E-19102026-277283), signed by Rajendra Kumar Meena, Under Secretary, CBDT. The canonical copy is on egazette.gov.in — see the Sources section below.
Sources
- Primary — official: e-Gazette of India, CBDT Notification No. 136/2026 [S.O. 5694(E)], Ministry of Finance (Department of Revenue), dated 19 October 2026 — "Exemption from deduction of tax at source in respect of interest payable under the New Development Bank (NDB) Maharajah INR Bond Programme". https://egazette.gov.in/WriteReadData/2026/277283.pdf
- Pointer — The Economic Times: coverage of the New Development Bank's Maharajah Bond programme (multilateral lender established 2015 by BRICS; ~₹25,000 crore issuance plan over five years; proceeds for general corporate purposes including onward lending to sustainable infrastructure, green and social projects in India).
- Pointer — The Economic Times / BusinessLine: Maharajah Bonds as onshore rupee-denominated instruments issued and settled in INR within India's domestic markets, sold to local and foreign institutional investors — unlike Masala bonds issued outside India; IRDAI's August 2026 disclosure of an NDB representation seeking insurer investment permission.
This article is based on the official e-Gazette notification read verbatim; every statutory reference, date and condition above traces to that document. Background on the NDB bond programme comes from news coverage and is flagged as such. It is an informational summary, not tax advice — confirm your position with a qualified professional before acting.
