Ltcg on dentures

This query is : Resolved

AMIT SINGHAL (Querist)
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11 January 2014 sir i hv got some debentures from market with cummulative option of interest paynent . This debenture has redemption time more than one year from the date of buying. I want to know what will be taxation of the interest eaned on it? Will it be considered under LTCG? If STT is not paid on these debentures what will be taxation?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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11 January 2014 The cumulative NCD option is not tax-free. The money you get at redemption will attract tax. There is a controversy if money received on redemption of NCD is taxable as interest income or capital gain. If treated as interest, it will be clubbed with the assessee's income and taxed at regular rates as applicable. This is a meaningful difference because people in the highest tax slab will have to pay about 30% tax if the redemption amount is treated as interest income instead of the lower capital gain tax rate.

Any coupon received would be added to your income from other sources or business income as the case may be. The remaining amount shall be subject to capital gains.

you are eligible for concessional rate of tax on any gain from sale after a year (long-term gain). The gain will be taxed at 10% without indexation of cost of acquisition. As the benefit of cost indexation is not available for bonds and debentures, long-term capital gain from NCDs is always taxable at 10.30% (including 3% education cess) without indexation. Capital gain will be computed by deducting expenditure incurred as such transfer and cost of acquisition of debenture from sale consideration. No tax deducted at source (TDS) is applicable on debentures listed on stock exchanges and held in demat form.

Please note that STT has no application here as LTCG on debentures is not exempted..

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