Tax-free bonds in India 2026-27: The real status, past psu issuers, and how to invest in what's available

Quick Answer

Tax-free bonds have not been newly issued in India since FY2015-16. As of mid-2026, there is no government notification authorising new tax-free bond issuance for FY2026-27, despite frequent online speculation suggesting otherwise. The tax-free bonds available to retail investors today are existing bonds from NHAI, REC, PFC, IRFC, HUDCO, and similar PSUs issued between 2012 and 2016, which can be purchased in the secondary market on NSE or BSE. These bonds carry their original fixed coupon rates (typically 7.18%–8.71%) and remain fully tax-exempt on interest income under Section 10(15)(iv)(h) until their original maturity, regardless of who currently holds them.

Introduction

Every year, search interest in "upcoming tax-free bonds" rises -and every year, a wave of articles speculate about which PSU might issue new tax-free bonds next. The honest, factual answer for 2026-27 is straightforward: no new tax-free bonds have been issued in India since FY2015-16, and as of mid-2026, there is no government notification indicating this is about to change.

This article gives you the real, current status of tax-free bonds in India -not speculation. It explains why new issuance stopped, which PSUs issued tax-free bonds historically, what is genuinely available for purchase today, and how to invest in the existing tax-free bonds that continue to trade in the secondary market.

All content is educational and does not constitute investment advice.

What Are Tax-Free Bonds?

Tax-free bonds are debt instruments issued by government-backed PSUs where the interest income is fully exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act, 1961 -regardless of the investor's tax slab.

Key features:

• Issued only by specific PSUs notified by the Central Government for a given financial year

• Long tenures -typically 10, 15, or 20 years

• Fixed annual coupon payments -no monthly or quarterly options

• Interest is 100% tax-exempt; only capital gains on sale before maturity are taxable

• Listed on NSE and BSE, enabling secondary market trading

• Cannot be redeemed early by the issuer -exit only via secondary market

The full tax exemption is what makes these bonds attractive, particularly for higher tax-bracket investors, since post-tax return can exceed a similarly-priced taxable bond.

The Real Status: Why No New Tax-Free Bonds Have Been Issued Since 2016

This is the most important fact for anyone searching for "upcoming tax-free bonds" in 2026: the Government of India has not authorised new tax-free bond issuance since FY2015-16.

Why issuance stopped: Government borrowing strategy shifted toward other instruments — including standard taxable PSU bonds, 54EC capital gain bonds, and direct G-Sec issuance — which offer the government more flexibility on interest rates without the revenue cost of a blanket tax exemption. Tax-free bonds represent a direct cost to government tax revenue, since the exempted interest income is revenue the government would otherwise collect. As fiscal priorities evolved, this instrument fell out of active use, even though the enabling legal provision (Section 10(15)(iv)(h)) remains on the books and could theoretically be used again.

Are There Any Upcoming Tax-Free Bonds for 2026-27?

As of mid-2026, there is no confirmed upcoming tax-free bond issuance for FY2026-27. No PSU has been notified by the Central Government to issue new tax-free bonds for the current financial year.

It is worth noting that numerous finance blogs and content sites publish "list of tax-free bonds [current year]" articles annually, often suggesting issuance "may" resume — these claims are typically speculative and not based on any government notification. BondScanner's position is to report only confirmed, notified issuance rather than speculate.

If new tax-free bonds were to be authorised, the process would typically involve:

• The Ministry of Finance notifying specific PSUs as eligible issuers for the financial year, along with the maximum amount each can raise

• The eligible PSU filing a prospectus with SEBI and the stock exchanges

• A public issue (and/or private placement) opening for a defined subscription window

• Listing on NSE and BSE following allotment

Until such a notification is published, any "upcoming tax-free bonds" content should be treated as speculative rather than factual. BondScanner will update this article if and when a genuine notification is issued.

Which PSUs Issued Tax-Free Bonds in India

While no new tax-free bonds are being issued, several PSUs issued them historically and their bonds remain tradeable today:

Coupon rates reflect original issuance terms from the 2012-2016 period and do not change for the life of the bond. Not a recommendation.

Tax-Free Bonds Currently Available in the Secondary Market

Bonds issued in 2012-2016 with 10, 15, or 20-year original tenures are at various stages of their lifecycle today:

Illustrative based on standard issuance patterns. Always verify the specific maturity date of any individual ISIN before investing.

Practical implication: The genuinely investable tax-free bond universe in 2026 is shrinking as more series approach and reach maturity. The bonds with the longest remaining tenure are those issued in the 2015-16 batch with original 20-year tenures, maturing around 2035-36. Investors interested in tax-free bonds should act with the understanding that this is a fixed, non-renewing pool of instruments, not a growing market.

Indicative as of Q2 2026. Not a recommendation.

For high-tax-bracket investors specifically, the after-tax comparison can still favour tax-free bonds despite their higher purchase price but this requires calculating the effective tax-free yield at current market price, not just comparing the printed coupon rate. For a complete framework on this calculation, refer to Taxation on Bonds in India: Comprehensive Guide.

How to Invest in Tax-Free Bonds Today

Since no primary market issuance exists, the only route to invest in tax-free bonds in 2026 is the secondary market:

Step 1 — Open a Demat and trading account with any SEBI-registered broker, if you do not already have one.

Step 2 — Search for tax-free bond ISINs on your broker's debt segment, or on a SEBI-registered OBPP platform such as BondScanner, which lists available tax-free bonds with their effective tax-free yield, remaining tenure, and issuer.

Step 3 — Compare available series by issuer, remaining tenure, and current market price — since multiple PSUs issued tax-free bonds with overlapping tenures.

Step 4 — Calculate the effective tax-free yield at the current market price, not the original coupon rate, since most tax-free bonds trade above face value.

Step 5 — Place a buy order on NSE or BSE through your broker or OBPP platform. Settlement is T+1.

Step 6 — Hold to maturity for full tax exemption — interest income remains tax-free for the life of the bond regardless of when you bought it; only gains from selling before maturity are taxable.

To explore currently listed bonds including any available tax-free series, visit bondscanner.com/bonds.

Taxation of Tax-Free Bonds: What Stays Exempt and What Doesn't

Interest income: Fully exempt from income tax under Section 10(15)(iv)(h), regardless of who currently holds the bond or at what price they purchased it. This exemption is attached to the bond itself, not the original subscriber.

Capital gains on sale before maturity:

• Sold within 12 months: Short-Term Capital Gain (STCG) - taxed at the investor's applicable slab rate

• Sold after 12 months: Long-Term Capital Gain (LTCG) - taxed at 12.5% without indexation, per current rules

At maturity: No capital gains tax arises if held to maturity, the bondholder simply receives the face value back, and only the (already tax-exempt) interest income was ever taxable-or-not over the bond's life.

Important distinction: The tax exemption applies only to the interest/coupon component, it does not extend to any capital gain made by buying the bond below its eventual redemption value and holding to maturity, or by selling it at a profit in the secondary market.

Alternatives If You Cannot Find Suitable Tax-Free Bonds

Given the shrinking and finite pool of tax-free bonds, investors seeking similar benefits should also consider:

54EC Capital Gain Bonds issued by PFC, REC, and similar PSUs, offering exemption from capital gains tax (not income tax on interest) for investors reinvesting proceeds from the sale of long-term capital assets. A different tax benefit mechanism, but relevant for similar investor profiles. Refer to Section 54EC Capital Gain Bonds: Complete Guide.

Sovereign Gold Bonds (SGBs) interest taxable, but capital gains at maturity are tax-exempt for original subscribers, per current rules.

High-quality AAA PSU bonds while fully taxable, current AAA PSU bond yields of 7.0%–7.5% can still be evaluated on a post-tax basis against tax-free bond alternatives, especially for investors in lower tax brackets. Refer to AAA Rated Bonds and FDs in India 2026.

FAQs

Are there any upcoming tax-free bonds in India for 2026-27?

No. As of mid-2026, the Government of India has not notified or approved any new tax-free bond issuance for FY2026-27. No new tax-free bonds have been issued since FY2015-16. Investors can only access existing bonds from the 2012-2016 issuance period in the secondary market.

What are tax-free bonds in India?

Tax-free bonds are debt instruments issued by government-backed PSUs where interest income is fully exempt from income tax under Section 10(15)(iv)(h) of the Income Tax Act. They were issued by NHAI, REC, PFC, IRFC, HUDCO, and similar entities mainly between 2012 and 2016, with 10-20 year tenures and coupon rates between 7.18% and 8.71%.

Which PSUs issued tax-free bonds in India?

NHAI, REC, PFC, IRFC, HUDCO, NTPC, NABARD, and IIFCL issued tax-free bonds, primarily between 2012 and 2016. These existing bonds continue to trade in the secondary market on NSE and BSE until their original maturity dates.

How can I invest in tax-free bonds in India in 2026?

Since no new issuance exists, investors can only purchase existing tax-free bonds from the 2012-2016 issuance period in the secondary market through a Demat account on NSE or BSE, or via a SEBI-registered OBPP platform such as BondScanner.

Why did the government stop issuing tax-free bonds?

Government borrowing strategy shifted toward other instruments that offer more flexibility without the direct revenue cost of a tax exemption. The enabling legal provision remains on the books but has not been actively used to authorise new issuance since FY2015-16.

Are existing tax-free bonds still actually tax-free if I buy them now?

Yes. The interest income tax exemption is attached to the bond itself under Section 10(15)(iv)(h), regardless of when you purchased it or at what price. The exemption continues for the life of the bond. Only capital gains from selling before maturity are taxable.

Should I buy tax-free bonds or taxable PSU bonds in 2026?

This depends on your tax bracket and the effective tax-free yield available at current market prices versus current taxable PSU bond yields. Higher tax-bracket investors may find tax-free bonds more attractive on a post-tax basis, but the pool of available tax-free bonds is limited and shrinking. This is educational information, not a recommendation, calculate the effective yield for your specific situation or consult a tax professional.

This article is published by BondScanner, a SEBI-registered Online Bond Platform Provider (OBPP). Links to BondScanner's bond listing page, Android app, and iOS app referenced in this article are for informational purposes only.

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Disclaimer

This blog is intended solely for educational and informational purposes. The instruments, issuer categories, yield ranges, and examples mentioned herein are illustrative and should not be construed as investment advice or recommendations.

BondScanner is a SEBI-registered OBPP and does not provide personalised investment advice. Nothing in this article is a solicitation to buy or sell any security.