Taxation of "Market Linked Debentures"

This discussion clarifies the tax treatment of Market Linked Debentures (MLDs) held in a D-mat account. The interest earned is generally treated as a Capital Gain rather than 'Income from Other Sources'. If MLDs are sold after holding them for more than a year, they are considered long-term capital gains and taxed at 20%. If sold within a year, they are taxed as short-term capital gains at 10%. Furthermore, these capital gains can be offset against capital losses from previous years.