Section 10(15)(iib): Income Tax Exemption on Interest from Notified Capital Investment Bonds
Section 10(15)(iib) of the Income-tax Act, 1961 provides an exemption for interest payable to an individual or Hindu undivided family (HUF) on eligible Capital Investment Bonds specifically notified by the Central Government. It is a narrowly defined exemption, not a blanket exemption for interest on all bonds.
Meaning and scope of Section 10(15)(iib)
Section 10 lists categories of income excluded from total income under the Income-tax Act, 1961. Clause (15) deals with specified interest and similar receipts. Sub-clause (iib) concerns interest on Capital Investment Bonds notified by the Central Government, when received by an eligible individual or HUF. The precise notification is essential: merely describing an investment as a capital bond does not establish eligibility.
Who can claim the exemption?
| Requirement | Rule |
|---|---|
| Eligible taxpayer | An individual or a Hindu undivided family (HUF). |
| Qualifying investment | Capital Investment Bonds covered by a valid Central Government notification issued for Section 10(15)(iib). |
| Nature of exempt receipt | Interest payable on qualifying notified bonds, subject to applicable statutory and notification conditions. |
| Amount exempt | The qualifying interest is exempt in full under the provision; there is no general rupee ceiling stated in the clause. |
| Notification cutoff | No Capital Investment Bond can be newly notified under this sub-clause on or after 1 June 2002. |
Conditions for tax-free interest
- Check the taxpayer category. The recipient must be an individual or HUF; this particular exemption is not generally available to every category of assessee.
- Verify the specific bond. Obtain the bond certificate or holding statement and identify the issue, issuer and governing notification.
- Confirm notification validity. The Central Government must have notified the bond for the purposes of this clause before the statutory cutoff.
- Identify the receipt correctly. The clause addresses interest; principal repayment, capital gains on transfer and any other payout require separate legal analysis.
- Apply the law for the relevant tax year. Older holdings and earlier-year returns may involve the 1961 Act, whereas later years must be assessed under the legislation then in force.
Government notification and historical reference
The earlier article identifies S.O. 413(E), dated 11 June 1982, as a notification associated with this exemption. This is a historical reference, not confirmation that a particular bond held today remains outstanding or qualifies. Verify the notification text, amendments, bond issue conditions and relevant year through the e-Gazette of India or other official records before claiming exemption.
What is not covered?
- Interest on ordinary corporate bonds, bank deposits or government securities that have not been specifically notified under this provision.
- Interest received by an ineligible taxpayer category under this particular sub-clause.
- Profits from selling or transferring bonds; any capital gains exemption must be established separately.
- Interest on a bond solely because its marketing name includes the words "capital" or "investment".
Example: how to test eligibility
Suppose an individual receives Rs. 12,000 interest from an old bond. If the bond was validly notified under Section 10(15)(iib), the recipient meets the conditions and the applicable law preserves the exemption, the qualifying interest may be excluded from taxable income. If the bond is not covered by the relevant notification, the interest cannot be exempted merely by citing this clause.
Section 10(15)(iib) and the Income-tax Act, 2025
The section number in this article refers to the Income-tax Act, 1961. The Income-tax Act, 2025 applies from 1 April 2026, subject to its commencement, transition and savings provisions. For income relating to the 2026-27 tax year onward, consult the current statute and its schedules for the equivalent treatment rather than assuming the former section number or historic notification is sufficient.
Documents to keep
- Bond allotment letter or investment certificate.
- Interest certificate, payment advice or account statement.
- Copy of the relevant Central Government notification and amendments, if any.
- Evidence of ownership and taxpayer status for the relevant period.
Frequently asked questions
Is all bond interest exempt under Section 10(15)(iib)?
No. Only interest meeting the exact notified Capital Investment Bond conditions and recipient requirements is covered.
Can a new bond issued after 1 June 2002 qualify?
No new bond can be notified under this specific clause on or after that date. This does not itself decide the tax treatment of every other bond, which may be governed by different provisions.
Is the full interest amount exempt?
Qualifying interest is exempt in full under this provision, subject to the statutory and notification conditions. The clause does not prescribe a general monetary cap.
Are proceeds from selling a notified bond also exempt?
Not automatically. This provision concerns interest, not a general exemption for capital gains or other receipts.
Official legal and tax resources
- Income Tax Department - income-tax legislation
- India Code - central legislation
- Gazette of India - notifications
- Income Tax e-Filing Portal
- Related guide: income exempt under Section 10
- Related guide: tax-free income
Updated 10 October 2026. This article provides general information; confirm the precise bond notification and the legislation applicable to the relevant tax year.