Union Budget 2023-24 + FINANCE Bill, 2023

Special provision for taxation of capital gains in case of Market Linked Debentures

1. It has been noticed that a variety of hybrid securities that combine features of plain vanilla debt securities and exchange traded derivatives are being issued through private placements and listed on stock exchanges. It is seen that such securities differ from plain vanilla debt securities.

2. ‘Market Linked Debentures’ are listed securities. They are currently being taxed as long- term capital gain at the rate of 10% without indexation. However, these securities are in the nature of derivatives which are normally taxed at applicable rates. Further, they give variable interests as they are linked with the performance of the market.

3. In order to tax the capital gains arising from the transfer or redemption or maturity of these securities as short-term capital gains at the applicable rates, it is proposed to insert a new section 50AA in the Act to treat the full value of the consideration received or accruing as a result of the transfer or redemption or maturity of the “Market Linked Debentures” as reduced by the cost of acquisition of the debenture and the expenditure incurred wholly or exclusively in connection with transfer or redemption of such debenture, as capital gains arising from the transfer of a short term capital asset.

4. Further, it is also proposed to define the ‘Market linked Debenture’ as 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 market returns on other underlying securities or indices and include any securities classified or regulated as a Market Linked Debenture by Securities and Exchange Board of India.

5. This amendment will take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.

[Clause 24]

 

---

Full Text:

Union Budget 2023-24 + FINANCE Bill, 2023

Taxation of Market Linked Debentures reclassified as short-term capital gains taxed at applicable rates under new provision. The proposal inserts a new provision treating gains on transfer, redemption or maturity of Market Linked Debentures as short-term capital gains taxable at applicable rates by treating the full consideration received, reduced by cost of acquisition and transfer-related expenditure, as capital gains from a short-term capital asset; it also defines Market Linked Debentures as debt-principal securities with returns linked to market returns or so classified by the market regulator and makes the change prospective.