So i’ve been browsing listings on wint wealth and theres quite a few senior secured corporate bonds with 1 to 3 year tenures offering around 10% yield. Looks attractive on the surface but wanted to think through the tax side before jumping in.
So the interest income gets taxed at your slab rate right? For someone in 30% bracket thats effectively 7% post tax. And on top of that theres 10% TDS being deducted on coupon payments for listed bonds above 5000 rupees. So the actual cash in hand experience is even more annoying from a cash flow perspective even if you do get TDS credit at the end of the year.
Is 7% post tax on a corporate bond actually worth it in 2026? Curious what others think.
yeah this is the right question to ask and most people dont bother doing this math before investing.
So just to be clear for anyone reading, the interest income from these bonds is fully taxable at your slab rate, theres no getting around that. The 10% TDS on listed corporate bond coupons has been in place since april 2023 and there was a lot of noise about getting it removed or the threshold raised but nothing changed in the last budget as far as i know.
The capital gains part is slightly more interesting. If you hold a listed bond for more than 12 months and sell it, you pay LTCG at 12.5% flat with no indexation. But if its an unlisted bond, under section 50AA all gains are treated as STCG at your slab rate regardless of how long you hold it. So for unlisted bonds you get absolutely zero tax efficiency no matter how patient you are.
For someone in 30% slab buying an unlisted corporate bond at 10%, post tax yield is 7%. And you need to then ask if 7% is enough compensation for the credit risk of a non sovereign issuer.