Section 76
Section 76: special provision for computation of capital gains in case of Market Linked Debenture
Section 76 overrides the ordinary short-term/long-term classification for a specific list of debt-like instruments - Market Linked Debentures, units of a "Specified Mutual Fund" acquired on or after 1 April 2023, and unlisted bonds or debentures transferred/redeemed/matured on or after 23 July 2024 - by always treating the resulting gains as short-term capital gains, computed without indexation.
Which assets this section covers
Section 76(2) applies this section's treatment to:
- A unit of a "Specified Mutual Fund" acquired on or after 1 April 2023, or a Market Linked Debenture; or
- An unlisted bond or unlisted debenture which is transferred, redeemed, or matures on or after 23 July 2024.
The computation
Section 76(1) and (3) treat the gains on transfer, redemption or maturity of these instruments as short-term capital gains, computed by the formula: consideration received or accruing, minus cost of acquisition, minus expenditure wholly and exclusively incurred in connection with the transfer/redemption/maturity.
Section 76(4) disallows any deduction for securities transaction tax paid under Chapter VII of the Finance (No. 2) Act, 2004, in this computation.
Key definitions
- "Market Linked Debenture" - a security with an underlying principal component in the form of a debt security, where returns are linked to market returns on other underlying securities or indices, including any security SEBI classifies or regulates as such.
- "Specified Mutual Fund" - a mutual fund that invests more than 65% of its total proceeds in debt and money market instruments, or that invests 65% or more of its proceeds in units of such a fund, with the percentage computed on the annual average of daily closing figures.
Frequently asked questions
Are gains on Market Linked Debentures always short-term capital gains?
Yes - Section 76(1) deems gains on transfer, redemption or maturity of a Market Linked Debenture to be short-term capital gains, irrespective of the actual holding period.
From when do unlisted bonds/debentures fall under this rule?
For transfers, redemptions or maturities on or after 23 July 2024, per Section 76(2)(b).
Can I claim indexation or an STT deduction on these instruments?
No - Section 76(4) specifically disallows deducting securities transaction tax, and since the gain is always short-term, indexation (which only applies to long-term gains) is not available.
Related sections
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