Managing Taxation
on Bonds in India
Taxation of bonds in India can be explained in four sections.
1.
2.
2.
4.
Regular Taxable
Bonds
Tax-Free
Bonds
Tax Saving
Bonds
Zero-Coupon
Bonds
Regular Taxation Of Bonds in India
The interest earned from Bonds is taxed as per marginal slab rate, and the maximum slab rate is 30 %. Appreciation of the bond price is considered as capital gain and taxed accordingly. If these bonds are held for the long term ( more than 12 months for listed bonds and more than 36 months for unlisted bonds), the capital gain tax will be 10 %.
Short-term capital gain tax can be 5% to 30%.
Tax-Free Bonds
In the case of Tax- free bonds, the interest earned from bonds is not taxed, but price appreciation of the bonds during maturity (or sale) is considered as capital appreciation. Hence capital gain taxes are applicable.
Tax Saving Bonds
54EC Bonds are Capital Gain Tax Exemption Bonds that provide 100% tax exemption on the long term capital gain earned by selling any property. These bonds are the best options to save tax after the property sale.
Zero-Coupon Bonds
Zero-coupon bonds do not pay interest, but they are sold at a discount and return full face value on redemption. Investors of Zero-Coupon Bonds are subjected to capital gains tax only.
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