Special provision for computation of capital gains in case of Market Linked Debenture
[Section-76 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 76(1) of Income Tax Act 2025
76(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).
Section 76(2) of Income Tax Act 2025
76(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 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.
Section 76(3) of Income Tax Act 2025
76(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 for such transfer or redemption or maturity.
Section 76(4) of Income Tax Act 2025
76(4) No deduction shall be allowed for any sum paid as securities transaction tax as per Chapter VII of the Finance (No. 2) Act, 2004.
Section 76(5) of Income Tax Act 2025
76(5) In 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; and
- (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.
FAQs on Section 76 of Income Tax Act 2025
1. What is the special provision for computation of capital gains in case of Market Linked Debentures under the Income Tax Act, 2025?
The gains arising on transfer, redemption, or maturity of Market Linked Debentures shall be treated as short-term capital gains and computed as per Section 76(3), irrespective of anything contained in section 2(101) or section 72.
2. From when is Section 76 applicable for Market Linked Debentures?
Section 76 is applicable w.e.f. 1st April, 2026, under the Income Tax Act, 2025.
3. Which capital assets are covered under Section 76(2) for the purpose of special computation?
The capital assets covered are: (a) a unit of a Specified Mutual Fund acquired on or after 1st April, 2023,
(b) a Market Linked Debenture, and
(c) an unlisted bond or an unlisted debenture transferred, redeemed, or matured on or after 23rd July, 2024.
4. How are short-term capital gains computed under Section 76(3)?
Short-term capital gains are computed as:
X = A – B – C,
where A = full value of consideration,
B = cost of acquisition, and
C = expenditure incurred wholly and exclusively for the transfer, redemption, or maturity.
5. Is indexation benefit available while computing gains on Market Linked Debentures under Section 76?
No, indexation benefit is not available. Gains are computed strictly based on the difference between sale value, cost of acquisition, and expenses without any indexation.
6. Can securities transaction tax (STT) be claimed as a deduction while computing short-term capital gains under Section 76?
No, as per Section 76(4), no deduction shall be allowed for any amount paid as securities transaction tax.
7. What is the meaning of a “Market Linked Debenture” as per Section 76(5)?
A Market Linked Debenture is a security with a principal component in the form of a debt security and returns linked to market returns of other securities or indices. It also includes any security classified or regulated as a Market Linked Debenture by SEBI.
8. What is a “Specified Mutual Fund” under Section 76(5)?
A Specified Mutual Fund means a Mutual Fund investing more than 65% of its total proceeds in debt and money market instruments or in units of such funds.
9. How is the 65% threshold for Specified Mutual Funds calculated?
The 65% investment threshold is calculated with reference to the annual average of the daily closing figures.
10. What instruments are considered “debt and money market instruments” for the purpose of Specified Mutual Funds?
Debt and money market instruments include any securities classified or regulated as debt and money market instruments by SEBI.
11. What happens if a Specified Mutual Fund was acquired before 1st April, 2023?
Units of a Specified Mutual Fund acquired before 1st April, 2023, are not covered under Section 76 for the special computation provisions.
12. Are listed Market Linked Debentures covered under Section 76?
Yes, listed or unlisted Market Linked Debentures are covered if they meet the definition provided under Section 76(5).
13. Are listed unlisted bonds and unlisted debentures treated similarly under Section 76?
Only unlisted bonds and unlisted debentures transferred, redeemed, or matured on or after 23rd July, 2024, are covered under Section 76, not listed bonds or debentures.
14. What is the tax implication if a Market Linked Debenture is held for more than 36 months?
Irrespective of the period of holding, gains from Market Linked Debentures are treated as short-term capital gains under Section 76.
15. Will gains from Market Linked Debentures be taxed at slab rates or special rates?
Short-term capital gains computed under Section 76 are taxable at applicable slab rates unless otherwise specified elsewhere in the Act.
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