Section 76 — Market Linked Debentures Specified MFs Unlisted Bonds | ITA 2025

Section 76 — - MARKET LINKED DEBENTURES / SPECIFIED MUTUAL FUNDS / UNLISTED BONDS / DEBENTURES

Section 76 is the substantive equivalent of 1961 s. 50AA -- the FORCED-STCG REGIME for three categories of securities introduced over FA 2023 / FA 2024: (a) MARKET LINKED DEBENTURES (MLDs -- structured debt with returns linked to underlying indices / equities); (b) SPECIFIED MUTUAL FUNDS (debt-oriented MFs with >65% debt-and-money-market exposure -- the FA 2023 'debt MF' watershed); (c) UNLISTED BONDS / DEBENTURES (post 23-Jul-2024 FA 2024 expansion). Irrespective of holding period (overrides s. 2(101) long-term test) AND irrespective of normal CG computation (overrides s. 72), all gains are TREATED AS STCG and computed via X = A - B - C formula. EFFECT: no LTCG concession (no 12.5% / 20%-indexed rates available); STCG charged at applicable slab rate (or 30% for non-individuals). The provision is the principal POST-2023 anti-arbitrage measure targeting debt-MF and structured-debt instruments that historically enjoyed equity-MF-style LTCG concession.

Statutory text — Income-tax Act, 2025

Marginal note -- Special provision for computation of capital gains in case of Market Linked Debenture, etc.

(1) Irrespective of anything contained in section 2(101) or section 72, the gains on the transfer or redemption or maturity, of a capital asset as mentioned in sub-section (2) shall be treated as short-term capital gains and shall be computed as per sub-section (3).

(2) For the purposes of sub-section (1), the capital asset shall be—

(a) a unit of a Specified Mutual Fund acquired on or after the 1st April, 2023 or a Market Linked Debenture; or

(b) an unlisted bond or an unlisted debenture which is transferred or redeemed or matures on or after the 23rd July, 2024.

(3) For the purposes of sub-section (1), the short-term capital gains shall be computed as per the following formula:— X = A – B – C, where,— X = short-term capital gains; A = full value of consideration received or accruing as a result of the transfer or redemption or maturity of the debenture or unit or bond; B = the cost of acquisition of the debenture or unit or bond; and C = the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity.

(4) In computing capital gains under sub-section (3), no deduction shall be allowed for any sum paid as securities transaction tax as per Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004).

(5) For the purposes of this section,—

(a) “Market Linked Debenture” means a security, by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices, and include any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India;

(b) “Specified Mutual Fund” means a Mutual Fund, by whatever name called, which invests more than 65% of its total proceeds in debt and money market instruments or a fund which invests 65% or more of its total proceeds in units of such Mutual Fund, subject to the following:—

(i) the percentage of investment in debt and money market instruments or in units of a fund shall be computed with reference to the annual average of the daily closing figures;

(ii) “debt and money market instruments” shall include any securities, by whatever name called, classified or regulated as debt and money market instruments by the Securities and Exchange Board of India.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 76	INCOME-TAX ACT, 1961 -- s. 50AA
Sub-s. (1) -- non-obstante override of holding-period (s. 2(101)) and computation (s. 72) for forced-STCG	1961 s. 50AA(1) [FA 2023]
Sub-s. (2)(a) -- Specified MF (debt-oriented post 1-Apr-2023) + MLD	1961 s. 50AA(2)(a) [FA 2023]
Sub-s. (2)(b) -- Unlisted bonds / debentures (FA 2024 post 23-Jul-2024)	1961 s. 50AA(2)(b) [FA 2024]
Sub-s. (3) -- X = A - B - C formula	1961 s. 50AA(3)
Sub-s. (4) -- STT non-deductibility (carried-over from s. 72)	1961 s. 50AA(4)
Sub-s. (5) -- definitions: MLD / Specified Mutual Fund / 65% debt-and-money-market threshold	1961 s. 50AA Explanation

STATUTORY ARCHITECTURE -- THREE COVERED CATEGORIES

(I) MARKET LINKED DEBENTURES (MLDs) [sub-s. 2(a)] -- structured debt instruments where returns linked to market indices / underlying equities. SEBI-classified as MLDs typically by structured-product arms of NBFCs / banks. Pre-FA 2023, MLDs enjoyed LTCG character if held > 36 months; FA 2023 forced STCG. (II) SPECIFIED MUTUAL FUNDS [sub-s. 2(a)] -- MF investing more than 65% of total proceeds in DEBT AND MONEY MARKET INSTRUMENTS (or fund-of-fund investing 65%+ in such MFs). 65% TEST METHODOLOGY (sub-s. 5(b)(i)): annual AVERAGE of DAILY CLOSING figures. So daily-closing >65% on average qualifies. DEBT AND MONEY MARKET INSTRUMENTS (sub-s. 5(b)(ii)): securities classified or regulated as such by SEBI -- bonds / G-Secs / commercial papers / certificates of deposit / treasury bills / NCDs etc. EFFECTIVE DATE for Specified MF: acquired ON OR AFTER 1-APR-2023 -- pre-1-Apr-2023 acquisitions retain pre-FA 2023 LTCG/STCG character. (III) UNLISTED BONDS / UNLISTED DEBENTURES [sub-s. 2(b)] -- transferred / redeemed / matured ON OR AFTER 23-JUL-2024 (FA 2024 effective date). All such transactions forced-STCG regardless of holding period. FORMULA (sub-s. 3): X = A - B - C, where: X = STCG; A = FVOC on transfer / redemption / maturity; B = cost of acquisition; C = transfer / redemption / maturity expenditure (wholly and exclusively). STT NON-DEDUCTIBILITY (sub-s. 4): same as s. 72(3)(b).

PRACTITIONER IMPACT

PRE-FA 2023 era: debt MFs / MLDs / unlisted bonds enjoyed LTCG @ 20% with indexation if held > 36 months. POST FA 2023: Specified MFs (debt-oriented post 1-Apr-2023) + MLDs forced-STCG -- slab-rate / corporate rate; no concession. POST FA 2024: Unlisted bonds / debentures (post 23-Jul-2024) ALSO forced-STCG. Effective tax cost for individuals: jumps from 20%-with-indexation (~12-15% effective) to slab rate (up to 30% + surcharge). For non-individuals: jumps from 20% LTCG to corporate rate (~25%+ for most). CARVE-OUT: Specified MF acquired BEFORE 1-Apr-2023 retains pre-FA 2023 character. Unlisted bonds acquired before 23-Jul-2024 -- if held thereafter and transferred AFTER 23-Jul-2024, transfer-date trigger may be debated; safer view = forced-STCG applies based on TRANSFER date. Practitioner alert: investors holding pre-cutoff portfolios should track acquisition dates carefully; new investments post-cutoff are STCG-character irrespective.

PLANNING NOTES

(i) SPECIFIED MF DETERMINATION -- check fund's annual average daily-closing debt+money-market exposure; equity-oriented funds (>65% equity) NOT covered (still LTCG-eligible under s. 198). (ii) MLD STRUCTURING -- post-FA 2023 MLDs no longer tax-efficient; many structured-product issuers have wound-down MLD pipeline. (iii) UNLISTED BONDS POST 23-JUL-2024 -- shifts cost-benefit of unlisted-bond investing; consider listed-bond alternatives where character preserved. (iv) PRE-CUTOFF HOLDINGS -- maintain CDSL/NSDL / DP statements documenting acquisition date; pre-cutoff acquisitions retain LTCG/STCG character. (v) DAILY-CLOSING METHODOLOGY -- engage with MF house for AVERAGE-DAILY-CLOSING data; needed if MF status disputed.

CROSS-REFERENCES

Section 2(101) -- Holding-period definition (overridden by s. 76 non-obstante).
Section 67 -- CG charging.
Section 72 -- Mode of computation (overridden).
Section 196 -- STCG rates.
Section 197 -- LTCG rates (NOT available for s. 76 categories).
Section 198 -- LTCG on STT-paid listed equity / equity-MF (parallel regime; equity-oriented preserved).
Finance (No. 2) Act 2004 Chapter VII -- STT framework.
SEBI Mutual Fund Regulations 1996 -- MF classification.
SEBI MLD Regulations -- MLD definition.

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