I had purchased g sec strips in July 2022 IN001223C030 and IN001224C079. One matured in Dec 2023 and one will mature in 2024. As these are considered zero coupon bonds, how are these taxed?
Hey @SashidharB,
In case of zero coupon bonds, if the holding period is less than 12 months, they’ll be classified as short-term and if the holding period is more than 12 months, long-term.
STCG will be taxed as per the applicable slab rate, whereas in case of LTCG, the tax liability will be lower of the following:
- 10% of capital gains without indexation benefit
- 20% of capital gains with indexation benefit
Hope this clarifies!
Hey @SashidharB,
According to RBI, STRIPS are the securities created by way of separating the cash flows associated with a regular G-Sec i.e. each semi-annual coupon payment and the final principal payment to be received from the issuer, into separate securities. Hence, they are essentially Zero Coupon Bonds (ZCBs).
Thank you for the clarification
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I have been reading Varsity and your posts on the Trading QNA forum.
What is the applicable slab rate mean here? Does that mean if I fall under a 30% bracket while filing the taxes, I pay taxes based on 30% of the appreciated amount? Please clarify.
Hey @Mehfooz9910,
Tax applicable at slab rate means that the profits that you earn will be added to your taxable income along with other incomes that you have.
Based on your total taxable income, your tax slab will be identified and the tax rate will be applicable accordingly.
Below are the income tax slabs under the new regime for your reference.
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Hi
In case of the so called zero coupon bonds issued by corporates, can the difference between the purchase price and the redeemed amount be considered as capital gain/loss and reported accordingly in the returns to be filed?
Hi
Please reply at your earliest possible time.
G-sec STRIPS (Separate Trading of Registered Interest and Principal of Securities) are zero-coupon bonds. The difference between the purchase price and the maturity value is treated as interest income and is taxed as per your applicable income tax slab. This interest income is not taxed annually but is taxed in the year of maturity or sale. Therefore, for the STRIPS that matured in December 2023, you will need to report the interest income in your tax return for that financial year.
Hi
Please reply
Hey @gdshan,
Yes, in this case, the difference between the purchase price and the redeemed amount will considered as capital gain/loss.
Apologies for missing out on your question.
HI @Surbhi_Pal
Thanks a lot for clarifying. I understand that a zero coupon bond attracts CG only if its notified. Where can one find if a zero coupon bond is notified or not for a corporate bond.
Hey @gdshan
Yes, corporate bonds can also be zero coupon bond.
CBDT releases notification on Zero Coupon Bonds whenever issue is open for the same.
You can also get the details of the same on the respective bond issue details.
Thank you.