The Income Tax Department has announced a Maharaja Bond tax exemption for eligible investors holding bonds issued by the New Development Bank (NDB). The notification exempts interest payments from tax deduction at source (TDS) from the 2026-27 tax year. The department has also introduced Form 173A for specified tax exemptions on government securities.

The measures, notified on October 19, 2026, cover different aspects of taxation for bond investors. While the Maharaja Bond notification addresses interest payments, the new form introduces disclosure requirements for eligible foreign investors and the Bank for International Settlements (BIS).

Maharaja Bond Tax Exemption: Who Can Benefit?

Under its notification, the government has specified that no TDS will be deducted on interest payments made by NDB to eligible holders of its Maharaja INR Bonds. The relief applies to the 2026-27 tax year and subsequent years.

Eligible holders include Indian residents and qualifying Foreign Institutional Investors (FIIs). NDB must also furnish the required information under the Income-tax Act, 2025, and applicable rules.

The notification took effect on October 19, when it was published in the Official Gazette. However, the Maharaja Bond tax exemption concerns TDS on interest payments and should not be interpreted as a blanket exemption from all tax liabilities.

Maharaja Bonds are rupee-denominated debt instruments. They differ from Masala Bonds, which Indian entities issue in international markets but denominate in Indian rupees.

The International Finance Corporation (IFC), a member of the World Bank Group, issued its first onshore rupee-denominated Maharaja Bonds in 2014.

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Key highlights:

• Eligible residents and FIIs receive TDS relief on interest from NDB’s Maharaja INR Bonds.
• The notification applies from the 2026-27 tax year onward.
• NDB must comply with the prescribed information-reporting requirements.

NDB’s India Plans and New Form 173A Rules

NDB has identified local-currency financing as a priority to reduce foreign exchange risks and support domestic capital markets. Its plans for 2026 include issuing Maharaja Bonds in India while working toward its target of 30% local-currency financing.

NDB President Dilma Rousseff has also announced plans to channel $7.5 billion into India over five years. The proposed support includes $5 billion in sovereign lending and a planned ₹25,000-crore-equivalent rupee bond program. The initiative aims to expand financing options beyond dollar-denominated funding, with support from the Indian government and the Reserve Bank of India.

Established in 2015 by BRICS countries, NDB finances infrastructure and sustainable development projects in emerging economies.

Separately, the Central Board of Direct Taxes (CBDT) has introduced Form 173A through the Income-tax (Seventh Amendment) Rules, 2026. The form requires information to claim specified exemptions under entries 13D and 13E of Schedule IV of the Income-tax Act, 2025.

Entry 13D covers eligible Foreign Institutional Investors, while entry 13E applies to the Bank for International Settlements. The exemptions concern interest income from government securities and capital gains arising from their sale, exchange, or transfer.

The new form aims to standardize disclosures and improve compliance. Eligible investors must provide the prescribed information to claim the relevant exemptions. These requirements are separate from the Maharaja Bond TDS relief announced by the department.