New Provisions

Special provision for computation of Capital gains in case of market-linked debentures

• Market-linked debentures are listed securities which combine features of plain vanilla debt securities and exchange traded derivatives.

• Further, being linked to the market performance, they provide variable returns to the investors as well.

• Currently, long-term capital gains (LTCG) arising from transfer, redemption or maturity of said securities are being taxed at a concessional rate of 10%.

• However, since these securities are in the nature of derivatives which are normally taxed at applicable rates, it has been proposed to tax such gains as short-term capital gains (STCG) at applicable normal rates of tax without allowing deduction of Securities Transaction Tax (STT) paid – [Section 50AA]

• Further, it has also been proposed to define market-linked debentures as securities having underlying principal component in the form of debt security and where the returns are linked to market returns or other underlying securities or indices and include those which are classified/ regulated by SEBI.