How are NCDs taxed?

There are two types of tax on NCDs: tax on interest income and capital gain tax. Interest income from NCD is added to the income from other sources head and taxed at the applicable slab.

In addition, there are two types of capital gains on NCD investment: short-term or long-term capital gain. When NCDs are held for less than a year, the profits derived from the sale of NCD are considered as short-term capital gain and taxed as per your tax slab. If you held NCDs for more than one year, the gains derived are considered as long-term capital gain and taxed at a lower of 20% (with indexation) and 10% (without indexation).