Tax Therapy for the capital acquire/loss half on a tax free curiosity Bond

For Tax Free Bonds such because the IRFC (INE053F07652) BOND 8.23% PA TF TI-SIA,(DATE OF MATURITY 18/02/2024) which is at present buying and selling at 1080.

Suppose I purchase on 6/10/22 100 models for 1080 – Rs. 1,08,000Future Curiosity cashflows18/2/23 – Rs. 8,23018/2/24 – Rs. 8,230Principal Reimbursement – 18/2/24 – Rs. 1,00,000

Few factors.

If I purchase it from secondary market like NSE/BSE I’m eligible for tax free curiosity advantages.
Curiosity funds of Rs. 16,460 are tax free.

@Quicko are you able to please inform the proper solution to consider the capital positive aspects or loss

If I maintain until maturity I get again Rs. 1,00,000a. Can I guide lack of Rs.8,000 (logic being I paid 1.08L for the safety and 1L on maturity) as capital loss in FY 24 ?b. The capital loss must be evaluated on the clear value on the time of shopping for the bond which might be 1080-(82.3*0.75(roughly the quantity of curiosity interval that might have accrued on fifth Oct)) which makes it Rs. 1018, so assuming the clear value of acquisition can I declare Rs. 1800 as Capital Loss ?c. No capital loss or acquire will be claimed at time of maturity.

Identical query as 3 however this time I promote earlier than maturity in secondary market relying on the value offered at can I declare capital loss/acquire and do I would like to contemplate the clear value at time of shopping for and promoting or the calculation will be accomplished on soiled value additionally.

@Jason_Castelino @nithin @Karthik Please weigh in if you realize the proper tax therapy for the capital acquire/loss half on a tax free curiosity Bond.

These aren’t 54EC Bond so far as I do know, in case you go to the cdsl bond hyperlink I shared it mentions

If Tax free – Part of The Revenue Tax Act,1961:Underneath Part 10(15)(iv)(h)

and the above part mentions in regards to the curiosity half being free for the bonds issued below the above part.

If I purchase it from secondary market like NSE/BSE I’m eligible for tax free curiosity advantages.
Curiosity funds of Rs. 16,460 are tax free.

@Quicko are you able to please inform the proper solution to consider the capital positive aspects or loss

If I maintain until maturity I get again Rs. 1,00,000a. Can I guide lack of Rs.8,000 (logic being I paid 1.08L for the safety and 1L on maturity) as capital loss in FY 24 ?b. The capital loss must be evaluated on the clear value on the time of shopping for the bond which might be 1080-(82.3*0.75(roughly the quantity of curiosity interval that might have accrued on fifth Oct)) which makes it Rs. 1018, so assuming the clear value of acquisition can I declare Rs. 1800 as Capital Loss ?c. No capital loss or acquire will be claimed at time of maturity.
Identical query as 3 however this time I promote earlier than maturity in secondary market relying on the value offered at can I declare capital loss/acquire and do I would like to contemplate the clear value at time of shopping for and promoting or the calculation will be accomplished on soiled value additionally.

1 & 2. Curiosity funds will stay tax-free even in case you purchase these bonds from the secondary market.3 & 4. You may think about soiled value as value at all times, no matter whether or not you maintain until maturity or exit. Making use of the clear value technique could also be tougher to rationalise with the Revenue Tax Workplace in case your returns are scrutinised and you haven’t employed the identical accounting ideas constantly.

If you happen to’re contemplating investing in tax-free bonds, it’s necessary to know the tax therapy of the capital positive aspects and losses on these bonds. Any capital acquire or loss is handled as if it occurred on a taxable bond while you promote a tax-free bond. It means you’ll pay taxes on any earnings however received’t get a deduction for any losses. Meaning you’ll pay taxes on any positive aspects however received’t get a deduction for any losses. So, in case you’re fascinated by investing in a lot of these bonds, it’s one thing to bear in mind.

Making use of the clear value technique could also be tougher to rationalise with the Revenue Tax Workplace in case your returns are scrutinised and you haven’t employed the identical accounting ideas constantly.

The explanation I’m saying to make use of clear value is as a result of in soiled value there will be situations the place one should purchase the bond at let’s imagine 1080 simply earlier than the curiosity cost date after which promote the bond simply after the curiosity is obtained at round 1000 (assuming the coupon yield is 8%) I’ll have tax free curiosity revenue and I also can declare capital lack of 80, so clear value sounds most acceptable to me however couldn’t discover any good useful resource on the best way it needs to be computed.

It means you’ll pay taxes on any earnings however received’t get a deduction for any losses.

Are you able to please share some useful resource, all of the articles I’ve learn discuss each capital positive aspects and capital loss on bonds – akin to Hyperlink

You have got understood it proper. You’ll be taxed on the relevant tax charge for the Capital positive aspects on sale of tax-free bonds on inventory change that was held for a interval of lower than 12 months. Equally, whether it is held for greater than 12 months, the positive aspects will likely be taxed at 10.3%.

however received’t get a deduction for any losses

What do you imply by no deduction for losses right here ? Are you saying if one has capital positive aspects they should pay taxes but when there may be capital loss then that loss can’t be used to offset different capital positive aspects or carry forwarded to subsequent years as is allowed for different capital loss eventualities.

Hello @Pratyush_Raj

For Tax-Free Bonds such because the IRFC, the curiosity cost will stay tax-free even in case you purchase from NSE/BSE. Therefore the curiosity cost of Rs. 16,460 is tax-free. You may commerce these bonds in secondary markets earlier than the maturity interval. The acquire/loss will likely be computed primarily based on the sale worth and the preliminary worth of the particular funding within the secondary market. No capital loss or acquire will be claimed on the time of maturity.

Right here’s a learn on Revenue Tax on Bonds & Debentures – Study by Quicko to your reference.

No capital loss or acquire will be claimed on the time of maturity.

Are you able to please broaden on this, if that’s the case then if somebody buys a bond at low cost from face worth say 900 and holds until maturity, and when 1000 is returned as principal, is the Rs.100 tax free ?Or will or not it’s taxable and in that case which head will it go below ?

@Quicko Are you able to please elaborate

Whats up @Pratyush_Raj

Normally the curiosity on bonds is taxable below the top of Revenue from Different Sources. Nevertheless, in case of tax-free bonds the curiosity is exempt.

The acquire on sale of such bonds is taxable below the top of Revenue from Capital Good points.

Hope this helps!

The acquire on sale of such bonds is taxable below the top of Revenue from Capital Good points.

What in regards to the acquire or loss on redemption at maturity, which is what @Pratyush_Raj has been attempting to ask (And I’m additionally all in favour of understanding about.)?

Additionally: might you please quote the related rule/round/… which lays the half about capital acquire/loss on redemption at maturity (not sale available in the market)?

Thanks.

Whats up @ZeroIndian,

The taxability of acquire on redemption of bonds held until maturity is defined by the next circumstances:

If the bond was issued at low cost and redeemed at par – The distinction between Invested worth and redeemed worth will likely be taxed below Revenue from capital positive aspects. (Bonds usually are not issued at low cost in India anymore, nevertheless, if you are going to buy bonds at a reduced value from the secondary market then capital positive aspects shall come up)

If the bond was issued and redeemed at par – No capital acquire shall come up on this state of affairs.

Hope this helps!

Hello @Quicko @mohitmehra

I’ve a number of queries. Can be useful if u might reply.I’m utterly new to bonds.

My pal has 40lac corpus. Desires to take a position solely in Tax Free bonds or G-sec/FDShe’s not curiosity in fairness/MFs. Desires VERY secure investments solely.

My queries:

I learn that retail traders can solely make investments upto 2lac Rs in tax-free bonds. Is that this appropriate?
Is it true that Govt/PSUs have stopped issueing new tax-free bonds and solely means to purchase tax-free bonds is from NSE/BSE?
My pal needs curiosity revenue.Her holding interval is 3-5 yearsWhich bonds can be greatest for her?As a place to begin, can u plz counsel which bonds can be advisable?

Hello @Som_E

Listed here are the solutions to your questions.

Retail traders can put money into tax-free bonds as much as ₹5 lakhs.
Public undertakings just like the Nationwide Freeway Authority of India, Rural Electrification Company, NTPC Restricted, Indian Railways, Indian Renewable Vitality Growth Company, Housing and City Growth Company, Energy Finance Company, and Rural Electrification Restricted situation tax-free bonds.They’re additionally traded within the secondary market.
Tax-free bonds are often issued for an extended tenure of 10, 15, or 20 years. The curiosity earned from these bonds is tax-free. These bonds are nearly risk-free since they’re issued by government-backed entities, therefore the likelihood of default of the curiosity cost in addition to principal reimbursement is sort of low.For individuals who have an everyday first rate revenue, tax-free bonds are a very good choice to put money into, particularly individuals who fall in the next tax bracket, it’s a good choice because the curiosity is tax-free.

Hope this helps.

@QuickoThanks for the extraordinarily immediate reply!!

For retail traders with corpus larger than 5lac, is there any tax-free bond/instrument for funding?

Whats up @Som_E,

As a retail investor most of INR 5 Lakhs will be invested in tax-free bonds. To know which tax-free bonds/funding to put money into you possibly can attain out to your monetary advisor.

Hope this helps!

Helloif purchase IRFCL bond at Rs. 1112.29 in Aug 2014 from the market and maintain until maturity when the speed is Rs. 1000 until feb 2024 find out how to calculate capital loss for the identical or will there be no capital acquire or loss?