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

Mr. Raman, a resident individual in the 30% slab (ignore surcharge and cess), holds listed non-convertible debentures of a company. He sold them on the stock exchange after holding for 10 months, for ₹1,06,000 against a purchase cost of ₹1,00,000. Under the rules for listed debentures, how is the gain treated and what is the tax at his slab rate?

The gain of ₹6,000 is short-term, because listed debentures held for 10 months do not cross the 12-month threshold. It is taxed at the investor's 30% slab rate, giving tax of ₹1,800. The special 20% rate applies only to STT-paid equity assets.

  1. ALong-term capital gain of ₹6,000 taxed at 12.5%, tax ₹750
  2. BShort-term capital gain of ₹6,000 taxed at slab rate, tax ₹1,800Correct
  3. CShort-term capital gain of ₹6,000 taxed at 20%, tax ₹1,200
  4. DExempt, as listed debentures are exempt on exchange sale

Explanation

Listed debentures need more than 12 months to be long-term; 10 months makes the gain short-term. Gain is 1,06,000 - 1,00,000 = ₹6,000. Short-term gain on debt instruments is taxed at the slab rate: 30% x 6,000 = ₹1,800. The 20% option applies only to STT-paid equity shares and equity funds, not to debentures.

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