Depending on the period of holding, capital gains on sale of bonds may be of short-term or long-term gains in nature and would be taxed accordingly.

Holding a bond for the entire issue period is just like staying invested in a fixed deposit (FD) for the full FD term. However, if you sell a bond in the secondary market, there may be some scope of making additional gains.

Depending on the period of holding, such gains may be of short-term or long-term gains in nature and would be taxed accordingly.

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

Since the Bonds are 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.

In the case of any gains arising from sovereign gold bonds would also be subject to tax as they are transferred before redemption and the investor may not avail the benefit of capital gain exemption u/s 47(viic) of the IT Act as aforementioned.

When a bond is bought from primary market and sold in off market

“Off Market Trades” are trades which are not settled through the Clearing Corporation/ Clearing House of an exchange. By this definition, off-market trades are trades taking place through the delivery of securities to or from sub brokers, delivery for trade-for-trade transactions, etc. The payment aspect is handled outside the depository (NSDL/CDSL) environment between the selling and buying clients.

The determination of the threshold period does not depend upon the manner in which the transaction is incurred but the nature of the bonds i.e. whether such bond is listed or unlisted at the time of sale or transfer. Bonds sold off market may either be through demat account or off market transactions may be carried out in case of unlisted bonds.

A. Period to decide whether capital gain is short-term or long-term – in case the bond is sold through off market due to such bond becoming unlisted, the threshold period would be 36 months and in case the same still constitutes a listed bond, the threshold period would be 36 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.