Know the Tax Rules Applicable on Bonds Bought from Primary Market & Sold in the Secondary Markets
Bonds in the fixed income segment is a popularly traded investment instrument. It is known to offer irresistible advantages. Bonds are also preferred for its great features. One of the highly considerable features of bonds is the liquidity.
There are many bonds listed on the exchanges (NSE / BSE) in the country for the potential investors. Bonds have short term, midterm, and long-term maturity. With the aim to provide liquidity and the option to enjoy additional gains, the investors are allowed the option to buy and sell bonds in the secondary markets. Such transactions in the secondary markets also includes tax implications on the gains apart from certain risks.
• The capital gains are taxed at a comparatively low rate.
• The holding duration of listed bonds required for long-term capital gains taxation is one year.
• 10% + surcharge & cess is applicable for the bonds held for a period of more than one year.
• Indexation is available only on Sovereign Gold Bonds.
About Tax Implication on Bonds Sold in Secondary Market
The interest or coupon earned at periodic intervals out of investment in bonds is taxed at your marginal slab rate i.e., 30% plus surcharge + cess. It is taxed under the head - ‘other income’.
Tax implication is an important aspect and so it is necessary to learn about the taxes applicable on the bonds bought from the primary market and sold in the secondary market.
The expert at BondsIndia explains ways the tax applies to –
> buy and sell of bonds in the secondary markets.
> prior to the bond maturity.
> holding until maturity.
Bonds are sold and bought through the registered Exchanges in India and hence they come under listed bonds category.
When bonds are bought from primary market and sold through authorised Exchanges in Secondary Markets BEFORE MATURITY.
Tax applicable on –
1. Long-term capital gain - taxed at 20%
2. Short-term capital gains - subject to the marginal slab rates
When bonds are bought from primary market and HELD UNTIL MATURITY.
There is no capital gain applicable if you buy bonds from the primary market and hold it till maturity.
Also, note that there is a component known as accrued interest applicable on bonds when a transaction takes place in the secondary market from the last date of interest pay-out up to the date of deal.
The detailed information above explains the tax rules applicable on bonds bought from primary market & sold in the secondary markets. There are a predefined tax rules applicable on transaction related to bonds. Tax implications is a key essential that you need to consider when trading in bonds.