Buying bonds from secondary markets? Know tax rules for selling it early, holding it till maturity | The Financial Express

Buying bonds from secondary markets? Know tax rules for selling it early, holding it till maturity

As a number of bonds are listed in stock exchanges to provide additional liquidity, investors have the opportunity to buy and/or sell the bonds in the secondary markets

Buying bonds from secondary markets? Know tax rules for selling it early, holding it till maturity
While secondary markets provide liquidity and opportunity to make additional gains, it also poses market risks, apart from tax implications on the gains made through such transactions.

As a number of bonds are listed in stock exchanges to provide additional liquidity, investors have the opportunity to buy and/or sell the bonds in the secondary markets, once the issuance of a bond is closed and buy-back of the bonds will only be done by the issuer on maturity.

While such opportunities to transact in secondary markets provide liquidity and opportunity to make additional gains, it also poses market risks, apart from tax implications on the gains made through such transactions.

Dr. Suresh Surana, Founder, RSM India explains the tax implications of buying bonds from the secondary market and selling them early or holding till maturity.

When a bond is bought from secondary market through recognised stock exchange and sold in secondary market through recognised stock exchange

Since the Bonds are purchased as well as sold through a recognised stock exchange, such bonds are listed bonds.

A. Period to decide whether capital gain is short term or long term – 12 months

B. Current tax rates applicable for each situation – long-term capital gain arising will be taxed at a rate of 20 per cent, and Short term capital gains would be subjected to the marginal slab rates.

When a bond is bought from secondary market through recognised stock exchange and held till maturity

The Bond has been bought from a secondary market through a recognised stock exchange which indicates that the same is a listed bond.

A. Period to decide whether capital gain is short term or long term – 12 months

B. Current tax rates applicable for each situation – long term capital gain arising will be taxed at a rate of 20 per cent, and Short term capital gains would be subjected to the marginal slab rates.

When a bond is bought from off market and sold in secondary market through recognised stock exchange

The tax treatment will be the same as that of the case, when a bond is bought from primary market and sold in off market.

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