Photo: iStock
Photo: iStock

Listed bonds held over 12 months are treated as LTCG

Gains on listed bonds, after holding them for 12 months or more, are LTCG taxable at 20% along with applicable surcharge and cess

I invested 17 lakh in an unlisted company as a private equity investor in March 2015. I sold off the investment for 11.3 lakh in August 2018, incurring a loss of 5.7 lakh. All the transactions were off-market. Will transaction be considered a long-term capital loss? Can I offset the loss of 5.7 lakh with any potential long-term capital gains (LTCG) from equity or from sale of property? Besides claiming capital loss, can I also apply indexation?

—P S Krishnan

Loss arising from the sale of unlisted shares will be treated as long-term capital loss if the shares have been held for more than 24 months. This loss can be set off against any taxable LTCG (either from the sale of house property or equity) in the same financial year (FY). Any unutilised long-term capital loss can be carried forward and set off against LTCG in the next eight financial years.

Since the shares sold by you qualify as a long-term capital asset, the cost of purchase can be enhanced for indexation. Indexation refers to adjustment of the cost of the asset based on the cost inflation index (CII) published by the tax department for the FYs of acquisition and transfer.

I redeemed my IDFC infra bonds in 2016 after their lock-in. I had held these bonds in demat form and sold them in the last FY. How will the income be taxed and at what rate?

— Arun Gupta

We have presumed that these are not deep discount bonds. The interest received from infrastructure bonds held by you would ordinarily be treated as interest income taxable as “income from other sources". Any price appreciation in the bonds on subsequent sale over the exchange would be taxed as capital gains.

As you have sold listed bonds, after holding them for 12 months or more, the gains are LTCG taxable at 20% along with applicable surcharge and cess. The difference between the sale consideration received by you and the indexed cost of the acquisition is treated as LTCG. Indexation refers to adjusting the cost of the asset based on the CII published by the income tax department for the FYs of purchase and transfer.

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Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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