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Investment Knowledge / Fixed Income / Government Securities (G-Secs)
Fixed income guide · tax reviewed 7 September 2026

Government Securities (G-Secs)

Central or State Government debt securities with coupon and maturity, available to retail investors.

Return: Coupon + market priceRisk: Very low default risk; market-price risk remainsLiquidity: Tradable; depth varies by security
← All fixed-income sections

What it is

Government securities are debt instruments issued by the Central or State Governments. RBI describes G-Secs as carrying practically no default risk, but their market prices still move when interest rates change.

IssuerGovernment of India / State Government
ReturnCoupon + maturity value
Typical useSovereign debt allocation
Key riskInterest-rate / duration risk if sold early

What can go wrong

  • Long-duration G-Secs can show large price swings when yields move, even though sovereign default risk is very low.
  • Selling before maturity can realise a capital loss.
  • Liquidity is usually best in benchmark securities and lower in some older or state issues.

Tax in India

  • Coupon interest is generally taxable at the investor’s applicable slab rate.
  • A sale before maturity can create a capital gain or loss. For listed Government Securities, long-term classification generally requires more than 12 months under current rules; LTCG is generally taxed at 12.5% without indexation.
  • Holding to maturity does not eliminate tax on coupon interest.

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.

G-Sec 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.

FY 2026-27 · Default new regime
Example used on this page: Assume ₹5,00,000 invested in a dated G-Sec paying an illustrative 7.0% annual coupon → ₹35,000 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 G-Sec return

₹6,00,000

After adding return: ₹6,35,000
Increase in annual tax: ≈ ₹0

Income becomes ₹6,35,000. 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 G-Sec return

₹12,00,000

After adding return: ₹12,35,000
Increase in annual tax: ≈ ₹36,400

Income becomes ₹12,35,000. ₹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 G-Sec return

₹50,00,000

After adding return: ₹50,35,000
Increase in annual tax: ≈ ₹36,400

Income becomes ₹50,35,000. ₹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 G-Sec 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.
Coupon interest is normal taxable income. If you sell before maturity, a capital gain/loss can arise. For listed G-Secs, the current long-term holding threshold is generally more than 12 months and LTCG is generally 12.5% without indexation.

Tax & bond words — explained simply

No jargon without meaning. These are the terms used on this G-Sec page.

CouponPeriodic interest paid by the Government on the security’s face value.
YieldThe annualised return implied by the market price and future cash flows. A bond bought above/below face value can have a yield different from its coupon.
Interest-rate riskIf market yields rise, the price of an existing fixed-rate G-Sec usually falls; if yields fall, its price usually rises.
Capital gainProfit if you sell a G-Sec above its tax cost. A loss can arise if you sell below cost.
LTCG / STCGFor listed Government Securities transferred on/after 23 July 2024, more than 12 months is generally long term.
IndexationInflation adjustment of tax cost. Current long-term capital gains on listed G-Secs transferred on/after 23 July 2024 are generally taxed at 12.5% without indexation.

Official references

Use the current issuer document and current law before investing. These links are starting points for verification.

RBI — Government Securities FAQs↗Income Tax Department — current tax law↗

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.

Compare return after tax, not only the headline rate.

Underpitch can help you compare tenure, credit quality, liquidity and post-tax yield before you invest.

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