NBFC bonds are often seen as high-yield fixed income instruments, but with the right structure and holding strategy, they can also play a supporting role in tax planning—especially for investors looking beyond traditional tax-saving options.

This blog explains how to save tax with NBFC bonds, their tax treatment, where they fit in a portfolio, and what investors should keep in mind.

What Are NBFC Bonds?

NBFC bonds are debt instruments issued by Non-Banking Financial Companies (NBFCs) to raise funds from investors. In return, investors receive regular interest income or capital appreciation, depending on the bond structure.

They are available as:

• Listed bonds (tradable on exchanges)
• Unlisted bonds (held till maturity)
• Secured and unsecured bonds

Are NBFC Bonds Tax-Free?

❌ No, NBFC bonds are not tax-free by default.

However, tax efficiency can be improved through:

• Holding period planning
• Capital gains taxation (for listed bonds)
• Income planning across tax slabs

📌 NBFC bonds do not qualify under Section 80C like ELSS or PPF.

How NBFC Bonds Help in Tax Planning

1. Capital Gains Advantage (Listed NBFC Bonds)

If NBFC bonds are listed on stock exchanges:

• Holding period > 12 months
  → Long-Term Capital Gains (LTCG) taxed at 10% without indexation
• Holding period ≤ 12 months
  → Short-Term Capital Gains (STCG) taxed as per income tax slab

📌 This can be more tax-efficient than fixed deposits for high-income investors.

2. Interest Income Planning

• Interest from NBFC bonds is fully taxable
• Taxed as per individual income tax slab
• Suitable for investors in lower tax brackets or senior citizens

Smart allocation helps balance:

• Interest income
• Capital gains exposure

3. Better Post-Tax Returns Than FDs (In Some Cases)

While FDs offer safety, NBFC bonds may deliver:

• Higher coupon rates
• Better post-tax yield, especially when LTCG applies

📌 This makes them attractive for tax-aware fixed-income investors.

4. Portfolio-Level Tax Optimisation

NBFC bonds work well when:

• Combined with equity (ELSS, ETFs)
• Used for income stability
• Planned around maturity dates and exit timing

They are tax planning enhancers, not replacements for core tax-saving instruments.

NBFC Bonds vs Fixed Deposits (Tax Perspective)

Parameter	NBFC Bonds	Fixed Deposits
Tax on Interest	As per slab	As per slab
Capital Gains Benefit	Yes (listed bonds)	No
Liquidity	Medium (listed)	Low
Post-Tax Yield	Potentially higher	Lower
Risk	Moderate	Low

Who Should Consider NBFC Bonds for Tax Planning?

NBFC bonds are suitable for:

• High-income investors
• Retirees needing predictable income
• Investors diversifying beyond FDs
• Those comfortable with moderate credit risk

They are not meant for pure tax deduction seekers, but for tax-efficient income planning.

How JM Financial Services Helps Investors with NBFC Bonds

Platforms like JM Financial Services help investors:

• Evaluate NBFC bond issuers
• Assess credit quality and yields
• Structure fixed-income portfolios
• Balance risk, return, and tax efficiency

Tax planning with bonds works best with professional due diligence.

Strengths of NBFC Bonds

• Higher interest rates than bank FDs
• Capital gains tax benefit on listed bonds
• Predictable income stream
• Portfolio diversification
• Suitable for income-focused investors

Risks of NBFC Bonds

• Credit risk of NBFC issuer
• Interest income fully taxable
• Liquidity risk in unlisted bonds
• Interest rate risk if sold early
• No Section 80C tax deduction

Frequently Asked Questions (FAQs)

1. Are NBFC bonds eligible for tax deduction under 80C?

No, NBFC bonds do not qualify under Section 80C.

2. Is interest from NBFC bonds taxable?

Yes, interest is fully taxable as per income tax slab.

3. How can NBFC bonds be tax-efficient?

Through long-term holding of listed bonds and capital gains planning.

4. Are NBFC bonds better than FDs for tax saving?

They can offer better post-tax returns but carry higher risk.

5. Are NBFC bonds safe?

Safety depends on the credit rating and financial strength of the issuer.