Debentures Capital Gains Tax -Sec. 50AA

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Section 50aa Capital gain on debenture
Debentures Capital Gains Tax
After section 50A the Income-tax Act, the following

section shall be inserted with effect from the 1st day of April, 2024, namely:–– 
 
Special provision for computation of capital gains in case of Market Linked Debenture(MLDs). 
 
Sec.50AA. Notwithstanding anything contained in clause (42A) of section 2 or section 48, where the capital asset is a Market Linked Debenture, the full value of consideration received or accruing as a result of the transfer or redemption or maturity of such debenture as reduced by––
 
  (i) the cost of acquisition of the debenture; and 
 
 (ii) the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity, shall be deemed to be the capital gains arising from the transfer of a short-term capital asset:
 Provided that no deduction shall be allowed in computing the income chargeable under the head “Capital gains” in respect of any sum paid on account of securities transaction tax under the
provisions of Chapter VII of the Finance (No. 2) Act, 2004. 23 of 2004.
 

Explanation.–– For the purposes of this section “Market Linked Debenture” means a security by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to the market returns on other underlying securities or indices, and includes any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India.’.

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Simple Analysis :-
 

1. What are marked linked debentures?

A fixed-income instrument with returns that are associated with the market-linked underlying index such as Nifty 50 or Government Securities performance.

2. What are the types of MLDs? 

There are two types in it: Principal protected MLD and Non principal-protected MLD. In India, only Principal protected MLDs are issued. 

3. As per the union budget, how are debentures taxed?

Previously, all revenue from MLDs was taxed at a fixed rate of 10%. However, from April 1, 2023, a new rule applies taxes on any income from MLDs at the investor’s slab rate.

4. What underlying indices are associated with the MLDs?

The underlying index can vary and includes Nifty, bank nifty, government securities, and gold.

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