Home >Money >Personal Finance >File taxes for FY of bond redemption on or before due date to carry forward LTCL
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Photo: iStock

File taxes for FY of bond redemption on or before due date to carry forward LTCL

The balance unadjusted LTCL can be carried forward for eight FYs immediately succeeding the FY of redemption

I have bought tax-free bonds from REC, National Highways Authority of India and others in the secondary market at a premium of 100 to 130. Which means the price I paid was 1,100 to 1,130 as against the base price of 1,000. Upon redemption on the maturity date, I will be making a loss taking into consideration the premium I have paid. The maturity of the bonds is four years away. Will the loss on the premium paid be considered as long-term capital loss (LTCL)? Can it be adjusted against any long-term capital gains (LTCG)? I am a non-resident Indian (NRI). Will the tax treatment be different for me?

—Sudha

It is assumed that the tax-free bonds held by you are listed on a recognized stock exchange in India and were acquired through fund sources in India. It’s also assumed that the bonds will be redeemed at par on maturity, which is four years away.

As per the current income tax provisions, as you would have held the bonds for more than 12 months on the date of maturity, the said bonds will qualify as a long-term capital asset in the financial year (FY) of the sale. The resultant gain or loss arising out of sale of the said bonds would be taxable in your hands as LTCG or LTCL. LTCG or LTCL is calculated as the difference between the net sale consideration (actual sale consideration less brokerage expenses) and the cost of acquisition (COA). No indexation benefit is available for investment in bonds.

In your case, as you have paid a premium to purchase the bonds, which will be redeemed at par on maturity, there should be a likely LTCL, equal to the premium paid by you.

LTCL arising from this transaction can be set off against other LTCG made by you, if any, in the said FY. The balance unadjusted LTCL can be carried forward for eight FYs immediately succeeding the FY in which the bonds are redeemed, and can be set off only against LTCG arising in the future.

Note that the India tax return for the FY during which the bonds are redeemed would need to be filed on or before the applicable due date, for you to be eligible to carry forward the LTCL arising from the sale of the bonds.

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

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