Avoid double tax on 7.75% GOI bonds: What investors must know

March 7, 2026 Finance Talk Valli Sarvani

Investors often assume that tax on interest income follows a straightforward process. However, the maturity of certain government bonds can sometimes create unexpected tax complications.

Many investors who purchased the 7.75% GOI Savings Bonds in 2018 are now encountering a tax mismatch at maturity.

These bonds carried a seven-year tenure and offered fixed annual interest. While some investors declared this interest every year on an accrual basis in their Income Tax Returns (ITRs), the tax deduction process followed a different timeline.

In several cases, the Reserve Bank of India deducted Tax Deducted at Source (TDS) only when the bonds matured.

As a result, the entire interest amount for the full tenure appeared in the financial year of maturity. Consequently, this created a situation where income that had already been reported in earlier years appeared taxable again.

The issue arises because the interest reported earlier was not reflected in Form 26AS during those years.

Therefore, the system records the full interest income only when the TDS is deducted at maturity. This mismatch may confuse the tax reporting system.

Tax experts caution that claiming the entire TDS credit in the maturity year without reporting the corresponding income may attract scrutiny.

Such discrepancies can result in the tax return being marked as defective or may lead to additional verification by the tax authorities.

Fortunately, there is a solution available. Taxpayers can use Form 71 to correct the mismatch.

This form allows investors to distribute the TDS credit across the years in which the interest income was originally declared. As a result, the tax credit aligns with the income already reported.

The form must be filed electronically through the Income Tax Department of India portal.

Importantly, it should be submitted within two years from the end of the financial year in which the TDS was deducted.

Experts also recommend maintaining clear documentation. Investors should keep a year-wise calculation of accrued interest and copies of earlier ITR acknowledgements.

Such records help justify the claim if the tax authorities request clarification.

Careful documentation and timely filing of Form 71 can help investors avoid paying tax twice on the same income.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on February 21, 2017