In the realm of fixed-income investments, tax-free bonds hold a special place—particularly for those seeking steady returns without the burden of taxes. Backed by government-owned enterprises, these bonds offer long-term stability, predictable income, and, most importantly, tax-free interest. If you’re looking to optimize your fixed-income strategy, this detailed tax free bonds list can serve as a helpful guide as you explore options for bonds investment in India.
What Are Tax-Free Bonds?
Tax-free bonds are long-term debt instruments issued by government-backed public sector undertakings (PSUs). The key advantage of these bonds lies in their tax treatment: the interest earned is exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act, 1961.
They are ideally suited for long-term investors—especially those in higher tax brackets—who wish to earn stable, low-risk returns without the tax drag seen in other fixed-income instruments like bank FDs or corporate bonds.
Why Consider Tax-Free Bonds for Your Portfolio?
Before diving into the tax free bonds list, it’s important to understand why these bonds have remained a favorite among risk-averse and tax-conscious investors:
Tax-Free Interest Income: No income tax on annual coupon payments
Government-Backed Issuers: Issued by highly rated PSUs, reducing credit risk
Long-Term Tenure: Ideal for retirement planning, legacy building, and passive income
Stable Yields: Locked-in rates provide certainty during volatile interest rate cycles
Listed on Exchanges: Can be bought or sold in the secondary market for liquidity
Whether you’re a retiree looking for predictable returns or a high-income earner aiming to reduce tax liability, tax-free bonds can play a vital role in your bonds investment in India.
Top Tax-Free Bonds List (Available in the Secondary Market)
Although fresh issuances of tax-free bonds have ceased since 2016, many high-quality bonds are still available in the secondary market through platforms like NSE/BSE or dedicated online bond portals. Here’s a curated tax free bonds list that investors can consider:
- Indian Railway Finance Corporation (IRFC) Tax-Free Bonds
Coupon: 7.32% to 8.10% (depending on the series/year)
Maturity: Varies (mostly 2026–2034)
Credit Rating: AAA
Why Consider: One of the most liquid and trusted PSU issuers, ideal for long-term holding
- National Highways Authority of India (NHAI) Tax-Free Bonds
Coupon: 7.39% to 8.30%
Maturity: Up to 2035
Credit Rating: AAA
Why Consider: Backed by an infrastructure-heavy PSU; popular among institutional and retail investors
- Power Finance Corporation (PFC) Tax-Free Bonds
Coupon: 7.36% to 8.20%
Maturity: Up to 2034
Credit Rating: AAA
Why Consider: High demand due to strong government support and predictable returns
- Rural Electrification Corporation (REC) Tax-Free Bonds
Coupon: 7.43% to 8.01%
Maturity: Several series available through 2030–2035
Credit Rating: AAA
Why Consider: Well-established issuer with a strong presence in rural infrastructure finance
- HUDCO (Housing and Urban Development Corporation) Tax-Free Bonds
Coupon: 7.29% to 8.20%
Maturity: Up to 2032
Credit Rating: AAA
Why Consider: Attractive yields with backing from a government urban development body
Things to Keep in Mind Before Investing
Interest Rate Sensitivity: As these are long-duration instruments, their prices may fluctuate with changing interest rates.
Liquidity: While listed, some bonds may have limited trading volumes.
Tax-Free Interest vs. Capital Gains: While interest is tax-free, capital gains on sale (if applicable) may attract tax.
Purchase Platform: Choose SEBI-registered platforms for transparency and security in execution.
How to Get Started with Tax-Free Bonds
To invest, one can buy these bonds in the secondary market through:
Demat-enabled trading accounts with NSE/BSE
SEBI-registered online bond investment platforms
Financial advisors or brokers specializing in fixed-income
As tax-free bonds are held in demat form, having a demat account is essential. You can check real-time prices and yields, and place your order digitally—making bonds investment in India seamless and accessible.
Final Thoughts
Tax-free bonds continue to be a reliable and tax-efficient investment avenue for long-term planners. While the primary market may no longer offer fresh issues, the secondary market remains rich with opportunity—provided investors know where to look.
This tax free bonds list can serve as a solid starting point for anyone looking to lock in stable, tax-free returns with low credit risk. As with any investment, align your choice with your goals, risk tolerance, and time horizon. And if needed, speak with a financial advisor to ensure these bonds fit into your broader asset allocation plan.
