The Ministry of Finance, Department of Revenue, through the Central Board of Direct Taxes (CBDT), has notified an exemption from deduction of tax at source (TDS) on interest payments made by the New Development Bank (NDB) to eligible holders of Maharajah INR Bonds issued by the Bank. The exemption has been notified vide Notification No. 136/2026, S.O. 5694(E), dated October 19, 2026, in exercise of the powers conferred under Section 400(1) of the Income-tax Act, 2025. The notification specifies that no tax shall be deducted at source on the prescribed interest payments during tax year 2026-27 and subsequent tax years, subject to the scope and conditions specified in the notification.
Under the notification, the Central Government has provided that no deduction of tax shall be made under Section 393(1), Table Serial Number 5, or Section 393(2), Table Serial Number 17, of the Income-tax Act, 2025, as applicable, on payments in the nature of interest made by the New Development Bank to eligible holders of Maharajah INR Bonds. The provision establishes a specific exemption from withholding tax obligations on such interest payments under the identified provisions of the Act.
The notification clarifies that, for the purpose of the exemption, the expression “holder of Maharajah INR Bonds” includes a resident or a Foreign Institutional Investor (FII) referred to under Section 210(6) of the Income-tax Act, 2025. Accordingly, the TDS exemption applies to the specified categories of bondholders receiving interest payments from the New Development Bank in respect of Maharajah INR Bonds issued by the institution.
The exemption will apply to interest payments made during tax year 2026-27 and subsequent tax years, providing a continuing framework for non-deduction of tax at source on the specified payments. The measure removes the requirement for tax deduction at source under the relevant provisions for eligible interest payments, thereby allowing such payments to be made without the specified withholding deductions.
The Government has also prescribed an information-reporting obligation for the New Development Bank. Under the notification, the Bank is required to furnish information in accordance with Schedule VII, Table Serial Number 49, of the Income-tax Act, 2025, and the applicable provisions of the Income-tax Rules, 2026. This requirement provides for continued reporting of relevant information even where interest payments are exempt from deduction of tax at source.
The measure is expected to facilitate interest payments under the New Development Bank’s Maharajah INR Bond programme by removing the specified TDS requirement for eligible bondholders. It may also improve administrative convenience for the Bank and the covered investors by simplifying the withholding-tax treatment of qualifying interest payments, while retaining the statutory information-reporting requirements.
The notification specifically provides relief from deduction of tax at source on the covered interest payments. It does not, by itself, declare the underlying interest income exempt from income tax in the hands of the bondholders. The distinction between non-deduction of TDS and the ultimate taxability of income remains subject to the applicable provisions of the Income-tax Act, 2025.
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/10/Exemption-from-deduction-of-tax-at-source-in-respect-of-interest-payable-under-the-New-Development-Bank-NDB-Maharajah-INR-Bond-Programme.pdf
