How it is calculated
Post-tax return = Pre-tax return × (1 − slab rate)- Annual interest = face value × coupon rate × number of bonds
- Interest from NCDs is taxed at your income slab rate, not at a special rate
- Applies to interest only, capital gains on an early sale are taxed separately
A worked example
- 1You buy 5 NCDs of ₹1,00,000 face value each, paying an 11% annual coupon, with 3 years to maturity.
- 2Annual interest income is ₹55,000, and ₹1,65,000 over the full three years.
- 3At maturity you also receive the ₹5,00,000 principal back.
- 4In the 30% slab, tax on the interest is ₹49,500 across the three years.
You keep ₹1,15,500 of the ₹1,65,000 in interest, an effective 7.7% a year rather than 11%. Against a fixed deposit taxed identically, that comparison is fair. Against a debt fund or an arbitrage fund with different tax treatment, comparing headline rates is meaningless.
How NCD interest is taxed
Interest is taxed under Income from Other Sources at your slab rate, in the year it accrues or is received. There is no indexation, no concessional rate and no long-term treatment for interest. It is simply added to your income.
TDS applies to interest on listed NCDs held in demat form from the 2023-24 financial year onward, at 10% where the interest exceeds the applicable threshold. TDS is not the final tax: if you are in the 30% slab you owe the remaining 20% at filing, and if your total income is below the exemption limit you can claim the deducted amount back.
Selling before maturity produces a capital gain or loss instead, taxed on its own rules by holding period. Listed NCDs held over twelve months qualify as long-term. This is genuinely a different computation from the interest above, and this calculator deliberately does not blur the two.
Cumulative and pay-out NCDs are not the same product
A pay-out NCD credits interest to you monthly, quarterly or annually. You get cash you can spend or reinvest, but you also pay tax each year whether or not you wanted the income.
A cumulative NCD accumulates interest and pays the whole amount at maturity. The headline maturity value looks larger, but the interest is still taxable as it accrues each year, so the tax bill arrives before the cash does. Do not read a cumulative NCD's maturity value as a tax-deferred return.
This calculator models the pay-out structure with coupons received and not reinvested, the conservative case. If you reinvest every coupon, your actual outcome will be higher than shown, by an amount that depends on the rates available when each coupon arrives.
What the return figure does not cover
Credit risk sits outside every number here. An NCD yielding 13% is not a superior version of one yielding 9%. It is an issue the market considers materially more likely to miss a payment. Retail investors in India have lost principal on high-coupon NCDs from issuers that looked sound until they were not.
Liquidity risk is the other omission. Many NCDs trade rarely, so exiting before maturity can mean accepting a wide discount or not finding a buyer at all in the size you hold. Treat the maturity date as the real horizon, not as a soft option.
Frequently asked questions
How is NCD interest taxed in India?+
At your income tax slab rate, as Income from Other Sources. There is no special or concessional rate for NCD interest, and no indexation benefit. Since FY 2023-24, TDS at 10% also applies to interest on listed NCDs held in demat form above the applicable threshold, adjustable against your final liability.
Are NCDs better than fixed deposits?+
NCDs generally offer a higher coupon than bank FDs of similar tenure, and both are taxed at slab rate, so the post-tax comparison is like for like. What differs is safety: bank deposits carry DICGC insurance up to ₹5 lakh per depositor per bank, while an NCD is an unsecured or secured claim on one company with no such backstop. The extra yield is payment for that difference, not a free upgrade.
What happens to my NCD if the company defaults?+
You become a creditor in the insolvency process. Secured NCD holders rank ahead of unsecured ones and both rank ahead of equity, but recovery depends on what assets exist and takes years. Recovery rates in Indian corporate insolvencies have frequently been well below face value. This is the risk the coupon is compensating you for.
Can I sell an NCD before maturity?+
Listed NCDs can be sold on the exchange, but most trade thinly. You may face a wide bid-ask spread, or find no buyer for your full quantity on the day you want to exit. Plan around holding to maturity and treat an early exit as a possibility rather than a certainty.