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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Debt Products

Caselet: Mr. Sanjay Iyer, in the 30% slab, invested Rs 5,00,000 in a listed zero-coupon bond issued by an Indian corporate. He held it for 18 months and sold it on the stock exchange for Rs 5,60,000. Assume that for this listed bond held beyond 12 months the gain is long-term and taxed at a flat 12.5% without indexation (ignore surcharge, cess, brokerage). Separately, he could instead have held a debt mutual fund purchased after 1 April 2023 that invests mostly in debt; gains on it are taxed at slab rates regardless of period. Which statement is correct?

The bond gain is Rs 60,000 taxed at 12.5 percent, giving Rs 7,500. A comparable gain on a specified debt mutual fund bought after 1 April 2023 would instead be taxed at the investor's slab rate regardless of holding period.

  1. ATax on the bond gain is Rs 7,500 and a similar gain on the specified debt mutual fund would be taxed at his slab rateCorrect
  2. BTax on the bond gain is Rs 18,000 because it is taxed at the slab rate
  3. CTax on the bond gain is Rs 7,500 and the debt fund gain would also be taxed at 12.5%
  4. DTax on the bond gain is Rs 12,000 at 20% with indexation

Explanation

Gain = 5,60,000 - 5,00,000 = Rs 60,000. At 12.5% the tax is Rs 7,500. Specified debt mutual fund units bought after 1 April 2023 are taxed at slab rate irrespective of holding period. Slab rate 30% on the bond (Rs 18,000) and 20% with indexation (Rs 12,000) conflict with the stated assumptions.

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