Capital gain on bond

Dear Milap,

I am going with the assumption that the bonds have been listed in a rec stock exchange. Hence it is getting covered under the category of 'any other security listed in a recognised stock exchange' and hence if it is held for a period of more than 12 months it is a long term capital asset and if it has been held for a period of less than 12 months its a short term capital asset. Accordingly tax @ 20% will be levied if its a long term capital asset and at normal rates along with other heads of income if its a short term capital asset.

Whether ur sale is effected through an exchange or market there wont be any difference in case of bonds.

Kindly correct me if i am wrong.

you right Prasanth as per the income tax u/s 10(38)if we paid on security transaction tax at the time of buying or selling an listed securities ,and if we hold that security more than 12 month.then profit arsing from that security by sale it exempted in u/s 10 (38).  

only main question is i want sale in off market and there is no stt so tax is aplicable or not.

thanks for rply.

Dear Milap,

Sec 10(38) exempts long term capital gains arising out of transfer of an listed equity share or an unit of an equity oriented fund and hence bonds are outside the ambit of it. Hence there is no exemption for a bond whether stt has been effected or not.

Dear prashanth

What items fall under the category of 'securities'?

'Securities' are defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA) to include:

·         Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate

·         Derivatives

·         Units or any other instrument issued by any collective investment scheme to the investors in such schemes

·         Security receipt as defined in Section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

·         Such other instruments as declared by the central government; and

·         Rights or interest in securities

·         Equity-oriented mutual funds (not debt-oriented mutual funds)

STT is not applicable in case of government securities, bonds, debentures and units of mutual fund other than equity oriented mutual fund.

Dear Milap,

You are absolutely correct. That is the exact reason why it falls under the 12 months category for classifying it to be long term or short term instead of 36 months. There is no definition in the act for long term capital asset as the act simply states its any asset other than short term capital asset. The definition of short term capital asset given u/s 2(42A) includes any other security listed in a recognised stock exchange which will cover bonds to be covered under the 12 months holding period and not 36 months holding period. Hence period for determination of whether TISCO bond is long term or short term is 12 months and not 36 months. Having said that Sec 10(38) mentions equity share of a company or an unit of an equity oriented fund only for the purpose of exempting capital gains and hence bonds are outside the purview of sec 10(38).