Higher tax on sale of market linked debentures

Currently long term gains on transfer of listed MLD are taxed at 10% (without indexation).

It is now proposed to introduce a new Section 50AA which will become effective from FY 2023-24 (AY 2024-25) under which such gains would be deemed short term and will be taxed at rates applicable to short term capital gains.

Since the language is to tax them at ‘applicable rates’ , it may be assumed that on listed MLDs the gains will be taxed at 15% and on others, they will be taxed at the rate applicable to the seller.

The reasoning for this change is that the MLDs are in the nature of derivatives as they are linked to the performance of the underlying securities in the market and hence should be taxed as income from derivatives.

MLD is defined to mean security which has underlying principal component in the form of debt security and the returns are linked to the market returns and includes any security classified or regulated as MLD by SEBI