← All fixed-income sectionsWhat it is
An NCD is a debt security that cannot convert into equity. Investors lend to the issuer and receive coupon payments and principal repayment according to the issue terms. “Secured” does not mean risk-free; security enforcement and asset value matter if the issuer defaults.
IssuerCompany / NBFC
StructureSecured or unsecured; listed or unlisted
ReturnFixed / floating coupon, sometimes cumulative
Key checkRating, security, cash flow, covenants
What can go wrong
- Issuer default or delayed payment can cause loss even when the NCD had a strong rating at issue.
- Bond prices can fall when interest rates rise, so selling before maturity can create a loss.
- Listed status does not guarantee deep liquidity; some NCDs trade infrequently.
Tax in India
- Coupon/interest is generally taxable at the investor’s applicable normal slab rate.
- For listed bonds/debentures transferred on or after 23 July 2024, long-term status generally requires a holding period exceeding 12 months, and LTCG is generally taxed at 12.5% without indexation.
- Unlisted bonds/debentures transferred, redeemed or matured on or after 23 July 2024 are generally treated as short-term capital gains irrespective of holding period and taxed at applicable rates.
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.
NCD 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 face/investment value in an NCD paying an illustrative 9.0% annual coupon → ₹45,000 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 NCD return₹6,00,000
After adding return: ₹6,45,000
Income becomes ₹6,45,000. 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 NCD return₹12,00,000
After adding return: ₹12,45,000
Income becomes ₹12,45,000. ₹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 NCD return₹50,00,000
After adding return: ₹50,45,000
Income becomes ₹50,45,000. ₹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 NCD 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 persona cards below tax only the coupon. If you sell an NCD, capital-gains rules are separate: listed NCD/debenture LTCG is generally 12.5% without indexation after the long-term holding period; unlisted bonds/debentures transferred, redeemed or matured on/after 23 July 2024 are generally deemed short-term under section 50AA.
Tax & bond words — explained simply
No jargon without meaning. These are the terms used on this NCD page.
CouponThe interest amount/rate the NCD promises to pay on its face value.
YieldYour actual return based on the price you paid, coupon cash flows and redemption value. Yield can differ from the coupon rate.
ListedThe NCD is admitted to trading on a recognised stock exchange. Listed status matters for holding-period and capital-gains rules.
Capital gainProfit made when the security is sold/redeemed for more than its tax cost, subject to the applicable tax rules.
LTCG / STCGLong-Term / Short-Term Capital Gain. For listed debentures transferred on/after 23 July 2024, more than 12 months is generally long term; unlisted bonds/debentures are subject to special short-term treatment under current rules.
IndexationAn inflation adjustment that used to increase the tax cost of some assets before calculating long-term gain. For transfers on/after 23 July 2024, listed bond/debenture LTCG is generally 12.5% without indexation; unlisted bonds/debentures have special short-term treatment.
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.
