The Ministry of Finance has announced a tax deduction at source (TDS) exemption on interest payments made by the New Development Bank (NDB) to eligible holders of its Maharaja INR Bonds. The exemption covers qualifying resident investors and foreign institutional investors (FIIs) for the tax year 2026-27 and subsequent tax years.
The decision provides clarity on the tax treatment of interest earned on these rupee-denominated bonds. The notification was issued on October 19, 2026, and took effect from the date of its publication in the Official Gazette.
What Are Maharaja INR Bonds?
Maharaja Bonds are rupee-denominated debt instruments issued in India by international financial institutions. They allow these institutions to raise funds in Indian rupees, which can be used to support infrastructure development and other projects while contributing to the growth of domestic capital markets.
The New Development Bank was established by Brazil, Russia, India, China and South Africa under the BRICS framework. Its primary purpose is to mobilise resources for infrastructure and sustainable development projects in emerging markets and developing countries.
According to the NDB’s 2025 annual report, the bank planned to expand into new markets in 2026, including through the issuance of INR-denominated Maharaja Bonds in India.
On August 13, 2026, NDB President Dilma Rousseff met Reserve Bank of India (RBI) Governor Sanjay Malhotra in Jaipur. Their discussions focused on strengthening cooperation between the two institutions.
According to the NDB, the meeting covered the regulatory treatment of its exposure in member countries, its ongoing engagement with Indian financial institutions and the proposed issuance of Maharaja Bonds to support infrastructure development in India.
What Does the Finance Ministry’s TDS Notification Say?
In its notification dated October 19, 2026, the Ministry of Finance specified that interest payments made by the NDB to eligible holders of Maharaja INR Bonds will not be subject to TDS during the tax year 2026-27 and subsequent tax years.
The exemption has been issued under Section 400(1) of the Income-tax Act, 2025. It provides relief from tax deduction under Section 393(1), Table Serial No. 5, or Section 393(2), Table Serial No. 17, as applicable.
The notification specifically states that no tax deduction is required on interest payments made by the New Development Bank to qualifying holders of its Maharaja INR Bonds.
The exemption applies to the specified interest payments and does not, by itself, establish that the income is entirely exempt from tax for the recipient. Investors should consider the tax rules applicable to their individual circumstances.
Who Is Eligible for the TDS Exemption?
The notification identifies two categories of eligible bondholders:
- Resident investors: Individuals or entities qualifying as residents under the applicable provisions.
- Foreign institutional investors (FIIs): Investors covered by Section 210(6) of the Income-tax Act, 2025.
Eligible residents and qualifying FIIs holding Maharaja INR Bonds issued by the NDB can receive interest payments without TDS being deducted under the provisions specified in the notification.
The exemption applies to the categories of investors and interest payments covered by the notification. Investors should verify their eligibility under the relevant legal provisions before relying on the relief.
NDB Reporting Requirements and Effective Date
Although the notification removes the requirement to deduct TDS on the specified interest payments, the New Development Bank must continue to comply with the applicable reporting obligations.
The bank is required to furnish information under Schedule VII, Table Serial No. 49, of the Income-tax Act, 2025, along with the relevant provisions of the Income-tax Rules, 2026.
The notification states that it comes into force on the date of its publication in the Official Gazette. As it was published on October 19, 2026, the exemption is effective from that date.
The measure clarifies the TDS treatment of interest paid on NDB’s Maharaja INR Bonds while retaining the bank’s applicable reporting responsibilities.
Disclaimer: This article is intended for general informational purposes only and should not be treated as tax, legal or investment advice. The applicability of the TDS exemption may depend on the investor’s status, the nature of the investment and the relevant statutory provisions. Readers should refer to the official Ministry of Finance notification and consult a qualified tax professional to understand how the rules apply to their individual circumstances.