SECTION 50AA SHORT TERM CAPITAL GAIN IN CASE OF MLD

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Mohit sachdeva (Querist)
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22 April 2025 Two queries for MLD debenture with 0% coupon rate
1. Is there any interest income earning on MLD debentures????
2. Tax rate of short term cap gain .
and other question is if any MLD acquired before 01.04.2023.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 1. Interest Income on MLD Debentures with 0% Coupon Rate
No explicit coupon interest is paid on such MLDs because the coupon rate is zero.

However, the increase in the value of MLD (difference between redemption price and issue price) is treated as accrued interest or income.

Under Income Tax law, such accretion or imputed interest is taxable as Income from Other Sources (or sometimes as Interest Income depending on facts).

So effectively, the yield is in the form of capital appreciation rather than periodic interest.

2. Tax Rate of Short-Term Capital Gain on MLDs
Section 50AA applies to capital gains arising on the transfer of certain listed debentures or bonds.

If the MLD is listed on a recognized stock exchange and held for 12 months or less, any gain on transfer is treated as short-term capital gain (STCG).

STCG on listed securities (including MLDs) is taxed at 15% plus applicable surcharge and cess.

If held for more than 12 months, then it is long-term capital gain (LTCG), taxed at 10% without indexation (Section 112A).

3. If MLD was acquired before 01.04.2023
For MLDs acquired before 1 April 2023, the holding period and taxation rules remain as explained above.

However, the Finance Act 2023 introduced certain changes for capital gains on listed securities, but these generally apply uniformly based on holding period.

The fair market value (FMV) as on 31.01.2018 may be relevant for certain grandfathering rules for long-term capital gains on listed securities but usually not for MLDs unless specified.

Check if the MLD qualifies as a listed security; else normal capital gains rules apply.

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