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TMI BlogComputation of capital gains in case of Market Linked Debenture: Clause 76 of the Income Tax Bill, 2025 vs. Section 50AA of the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... instruments that have gained popularity due to their market-linked returns. The provision is set against the backdrop of evolving financial markets and investment strategies, where traditional tax norms may not adequately address the complexities of new financial products. The clause seeks to ensure clarity and consistency in the tax treatment of MLDs, which could have implications for investors, issuers, and regulators. Objective and Purpose The primary objective of Clause 76 is to provide a clear framework for calculating capital gains on MLDs, which are financial instruments whose returns are linked to market indices or other underlying securities. The clause aims to ensure that gains from these instruments are treated as short-term c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively for the transaction. This formula is straightforward, aiming to simplify the computation process and reduce ambiguity in determining taxable gains. Sub-section (4): Disallowance of Securities Transaction Tax Deduction Sub-section (4) explicitly disallows deductions for securities transaction tax (STT) paid under Chapter VII of the Finance (No. 2) Act, 2004. This provision prevents taxpayers from reducing their taxable gains by claiming deductions for STT, aligning with the broader objective of ensuring fair taxation of speculative gains. Sub-section (5): Definitions Sub-section (5) defines key terms such as "Market Linked Debenture" and "Specified Mutual Fund." The definition of MLDs emphasizes their debt security nature and marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as short-term capital gains. However, there are notable differences in their scope and application. Clause 76 is part of a new legislative framework, potentially reflecting updated policy considerations and a broader scope, while Section 50AA is part of the existing Income Tax Act, 1961. Scope of Covered Assets Clause 76 explicitly includes unlisted bonds and debentures maturing post-July 2024, expanding its coverage compared to Section 50AA, which focuses on MLDs and Specified Mutual Funds. This difference indicates a broader approach in Clause 76, potentially capturing a wider range of financial products. Computation Methodology Both provisions employ a similar formula for computing short-term capital gains, emphasizing the full va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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