However, due to the longer maturity term of these tax-free bonds of 10, 15 and 20 years, it is quite possible that an investor finds it hard to keep them until the maturity term and might wish to redeem his investment in the instrument after some time. The same is facilitated in the open market as such bonds get listed on the Indian bourses i.e NSE and BSE. However as the volume of trading is relatively low an investor in a practical situation might find really hard to dispose off his investment in the instrument in the secondary market.

In a case when he/she (investor) somehow manages to sell across held tax-free bond units in the open or secondary market there arises tax implication on the income earned during the period.

Tax-implication on tax-free bonds sold prematurely

On the realized capital gains by holding the instrument for a few years, capital gains tax @10% is payable on the gains. (Note: Benefit of cost indexation is not provided in case of tax-free bonds like in real estate).

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