Government Security Auction Nov 2026: Tax Impact for Primary Dealers

By EaseValue Tax Team, Chartered Accountants Published 12 Nov 2026 6 min read

What Happened?

The Government of India has announced the sale (re-issue) of Government Security worth ₹34,000 crore on November 13, 2026 (Friday). The security is a 6.94% GS 2036 bond. This auction will be conducted through multiple price-based method, with Primary Dealers (PDs) participating through the Reserve Bank of India's Core Banking Solution (e-Kuber system). The underwriting auction window opens between 09:00 A.M. and 09:30 A.M. on the auction date. Each PD has a Minimum Underwriting Commitment (MUC) of ₹810 crore and minimum bidding commitment under Additional Competitive Underwriting (ACU) auction of ₹810 crore per PD.

Background & Legal Context

Government Securities are debt instruments issued by the Government of India to raise funds. The underwriting of these securities is a regulated financial activity governed by RBI guidelines and the Income Tax Act, 2025.

Key Tax Provisions:

Income Tax Act 2025 — Section 28: Income from business or profession, including underwriting of securities, is taxable under this section. The underwriting commission earned by PDs will be classified as business income.
Income Tax Act 2025 — Section 44AB: If gross receipts exceed ₹5 crore, maintenance of books of accounts is mandatory for PDs engaged in underwriting activities.
Income Tax Act 2025 — Section 80-IA/80-IB: Certain financial institutions may claim deductions if they qualify, though this typically applies to specific sectors.
GST Perspective: As per GST law, financial services provided by PDs, including underwriting services, are taxable at 18% GST (as per Schedule III, Entry 8 of CGST/SGST Rules). However, underwriting of Government Securities may attract 5% GST depending on the nature of service classification and exemptions under Section 12 of IGST Act, 2017.
TDS Implications: Under Section 194LB of Income Tax Act 2025, TDS at 10% (or applicable rate) may be applicable on underwriting commission paid to PDs, though Government Securities underwriting may have specific exemptions.

Assessment Year 2025-26 & 2026-27 Applicability:

For the financial year 2025-26 (AY 2026-27), PDs must recognize underwriting commission received on November 13, 2026, in their books of accounts. The commission will be credited to the current account of respective PDs with RBI on the day of issue of security, which triggers income recognition under Income Tax Act 2025.

What Does This Mean for You?

If your organization is a Primary Dealer participating in this auction, this announcement creates several important tax compliance obligations:

For Primary Dealers — Income Tax:

Business Income Recognition: The underwriting commission earned is business income under Section 28 of Income Tax Act 2025. You must record this as income in the financial year 2025-26 (AY 2026-27).
Calculation of Profit: Underwriting commission is gross income. You can claim direct expenses related to underwriting (staff costs, technology, audit fees, etc.) as deductions under Section 37 of Income Tax Act 2025.
TDS Credit: If TDS is deducted on underwriting commission at source, you can claim credit under Section 199 of Income Tax Act 2025 against your total tax liability for AY 2026-27.
Book Audit Requirement: Given that ₹34,000 crore is involved, PDs with gross receipts exceeding ₹5 crore must get statutory audit under Section 44AB and maintain detailed books under the new Income Tax Act 2025.

For Primary Dealers — GST:

GST Registration: All PDs must maintain active GST registration. Underwriting services are generally taxable at 18% GST under Schedule III (Financial Services).
Input Tax Credit: However, Government Securities underwriting may qualify for exemption or lower GST rate (5%) depending on RBI classification and CBIC notification. You must verify applicable GST rate with your tax advisor.
GST Invoice & ITC: If GST is applicable, PDs must issue proper GST invoices. Government entities (GoI) typically cannot claim Input Tax Credit (ITC), so compliance documentation is critical.
E-way Bill: Not applicable, as this is a financial service, not goods movement.

Broader Implications:

Cash Flow: Commission credited on issue date will impact your cash flow for AY 2026-27. Plan for advance tax payment under Section 208 of Income Tax Act 2025 if commission is substantial.
Balance Sheet Impact: For financial reporting, underwriting commission is revenue for AY 2025-26. Interest rate risk on ₹34,000 crore security issuance may affect market value adjustments under Ind-AS standards.
Regulatory Capital: Underwriting commitment of ₹810 crore per PD requires allocation of regulatory capital under RBI guidelines, which indirectly impacts profitability ratios used for tax planning.

What Should You Do Now?

Action Checklist for Primary Dealers:

1. Verify GST Classification: Immediately contact your GST consultant or check RBI/CBIC notification to confirm whether underwriting commission on this Government Security issuance attracts 18% GST or qualifies for exemption/lower rate. Incorrect GST rate leads to penalties under Section 122 of CGST Act, 2017.
2. Review Underwriting Commitment Capacity: Ensure your organization can meet the MUC of ₹810 crore per security without violating prudential guidelines. This is not directly a tax issue, but affects profit calculation if you cannot participate fully.
3. Document Commission Receipt: On the issue date (after November 13, 2026, auction settlement), maintain clear records of underwriting commission credited to your RBI current account. This is first evidence of income for tax purposes.
4. Claim TDS Credit Proactively: If TDS is deducted on commission, obtain TDS certificate (Form 16A or 16) from RBI and file it in your ITR for AY 2026-27. Do not ignore small TDS amounts; aggregate TDS claimed affects tax refund.
5. Update Books & GST Return: Within 20 days of commission receipt, record the transaction in your general ledger. File GSTR-3B for the relevant GST period (Nov 2026 or Dec 2026, depending on your GST return due date) with correct classification and tax payment.
6. Audit Preparation: Begin collecting invoices, agreements, and supporting documents now. Statutory auditor will require evidence of business nature and valuation of underwriting service.
7. Advance Tax Planning: If your organization expects substantial commission income, calculate estimated tax liability for AY 2026-27 and pay advance tax in installments under Section 208 to avoid penalty under Section 234C of Income Tax Act 2025.
8. Consult on Interest Rate Risk: If the 6.94% GS 2036 security is held in trading book, mark-to-market gains/losses are taxable. Coordinate with your treasury and tax team on fair value accounting.

Key Takeaways

Income Recognition: Underwriting commission on ₹34,000 crore Government Security auction is taxable business income in AY 2026-27 under Section 28 of Income Tax Act 2025. Recognition date is when commission is credited to your RBI account.
GST Compliance Risk: Verify whether this underwriting service attracts 18% or lower GST rate. Filing incorrect GST return can trigger audit and penalties. Government entities often claim no ITC, so ensure invoicing is precise.
TDS & Credit: TDS may be deducted on commission. Always request and file TDS certificates with your ITR to ensure full credit against your tax liability for AY 2026-27.
Documentation Essential: Maintain audit trail of commission calculation, bidding process (e-Kuber records), and settlement evidence. Statutory auditor and Income Tax officer may seek these documents under Section 44AB and Section 142 respectively.
Plan for Advance Tax: If commission is substantial, pay advance tax in quarterly installments to avoid interest under Section 234C of Income Tax Act 2025. Calculate based on your estimated total income for FY 2025-26.

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