Budget 2023-24: Market-Linked Debentures to Attract Higher Tax; Listed Debenture To Come Under TDS

The Finance Minister Nirmala Sitharaman, in the budget 2023-2024, has removed the exemption from tax deduction at source (TDS) on interest payment on listed debentures which was available under Section 193 of the Act. The proviso to section 193 of the Act provides an exemption from TDS concerning interest payment on certain securities. The aforesaid section provides that no tax is to be deducted in the case of any interest payable on any security issued by a company, where such security is in dematerialized form and is listed on a recognized stock exchange in India under the Securities Contracts (Regulation) Act, 1956.

This has been decided because “there is under-reporting of interest income by the recipient due to above TDS exemption. Hence, it is proposed to omit clause (ix) of the proviso to section 193 of the Act. 4. This amendment will take effect from 1st April 2023,” read the finance bill.

According to the bill, “It has been noticed that a variety of hybrid securities that combine features of plain vanilla debt securities and exchange-traded derivatives are being issued through private placements and listed on stock exchanges. It is seen that such securities differ from plain vanilla debt securities”.

Market linked debentures are listed securities. They are currently being taxed as a long-term capital gain at 10 per cent without indexation. However, these securities are in the 30 per cent nature of derivatives, generally taxed at applicable rates. Further, they give variable interests as they are linked with the performance of the market.

To tax the capital gains arising from the transfer or redemption, or maturity of these securities as short-term capital gains at the applicable rates, it is proposed to insert a new section 50AA in the Act to treat the full value of the consideration received or accruing as a result of the transfer or redemption or maturity of the “Market Linked Debentures” as reduced by the cost of acquisition of the debenture and the expenditure incurred wholly or exclusively in connection with transfer or redemption of such debenture, as capital gains arising from the transfer of a short term capital asset.

It is also proposed to define the ‘Market linked Debenture’ as a security by whatever name called, which has an underlying principal component in the form of debt security and where the returns are linked to market returns on other underlying securities or indices, including any securities classified or regulated as a Market Linked Debenture by Securities and Exchange Board of India.

This amendment will take effect from the 1st day of April 2024 and shall apply to the assessment year 2024-25 and subsequent assessment years.

No capital gain tax on the conversion of gold into electronic gold and Vice Versa

Not treating conversion of gold into the electronic gold receipt and vice versa as a capital gain. The budget has also reduced the TDS rate from 30 per cent to 20 per cent on the taxable portion of EPF withdrawal in non-PAN cases.