NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Debt Products
Mrs. Leela Nair, a resident individual, owns tax-free bonds issued by a notified public sector entity and receives Rs 40,000 as interest. How is this interest treated?
The interest of Rs 40,000 is exempt from income tax because tax-free bonds issued by notified entities carry an exemption on their interest in the holder's hands. It is not taxed at slab rate and is not treated as capital gains.
- ATaxed at 10% with TDS
- BTaxed at slab rate
- CExempt from income tax under the ActCorrect
- DTaxed as capital gains
Explanation
Interest on notified tax-free bonds is exempt in the hands of the holder, which is why their yields are lower than taxable bonds. Slab rate and TDS treatment do not apply. It is also not capital gains.
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