The absence of TDS would eliminate cash flow inefficiencies and administrative hurdles for investors
By VISHAL GOENKA
Co-Founder of IndiaBonds.com
The Union Budget 2024 introduced a 10% TDS (Tax Deducted at Source) on coupon payments from listed bonds. While the intention behind this policy was to ensure greater tax compliance, it has introduced reasonable challenges for fixed-income investors, particularly retail/individual investors.
Many investors are unaware of how bond investments work, particularly when it comes to timing coupon payments. Transactions done between two coupon payments have adverse effect on cashflows and YTM (Yield to Maturity) calculations. The holder on interest payment date gets the coupon on entire interest period and also 10% TDS on entire amount even though he may have bought it in secondary where he already paid accrued interest to seller.
For senior citizens, while Form 15G/15H can exempt them from TDS, the process is not always smooth. This can lead to unintentional deductions and require time-consuming refund claims, which adds unnecessary complications for those relying on regular coupon income.
Revisiting the TDS provision on coupon payments could help mitigate these challenges. The absence of TDS would eliminate cash flow inefficiencies and administrative hurdles for investors while preserving the predictability of bond returns. It would also address a critical deterrent for retail participation in the bond market at a time when the government and regulators are actively working to widen access to fixed-income investments.
India’s bond market has seen significant developments in recent years, supported by technology-driven platforms like Online Bond Platform Providers (OBPPs), progressive regulations, and growing investor interest in the product. Simplifying tax-related processes, such as TDS, would further support the government’s broader agenda of deepening market participation and encouraging the transition to a more inclusive investment landscape. A rollback of TDS on coupon payments would be consistent with the efforts to streamline the fixed-income market and attract a broader base of investors. It would also allow the Indian bond market to contribute more effectively to the larger goal of creating a stable and diversified financial ecosystem.
