Start with the exit event and the instrument
For an unlisted bond or debenture held as a capital asset and transferred, redeemed or matured in tax year 2026–27, section 76(2)(b) of the Income-tax Act, 2025 brings the event into the special computation. Section 76(1) treats the resulting amount under that computation as capital gains from a short-term capital asset, despite sections 2(101) and 72. The computation itself is in section 76(3). A long holding period does not restore long-term treatment.
Read the applicable text: Income-tax Act, 2025, sections 1, 67 and 76.
Keep the two 2026–27 labels apart
The 2025 Act comes into force on 1 April 2026. This guide is for exits in the tax year beginning on that date, rather than the return for FY 2025–26 labelled AY 2026–27. The 23 July 2024 date in section 76(2)(b) attaches to transfer, redemption or maturity. It does not mean that the purchase must have taken place on or after that date or that the 2025 Act applies retroactively.
Build the computation by security and exit
Start from the full consideration received or accruing from the event. Subtract the supported cost of acquisition of the units exited, and expenditure incurred wholly and exclusively in connection with that event. Subsection (4) prevents deduction of securities transaction tax in this calculation. Keep subscription records, secondary purchase confirmations, corporate actions and evidence identifying the disposed lots. Where holdings are fungible, check the statutory method before allocating cost. Section 67(7)(c) expressly prescribes first-in, first-out for depository transfers for the purposes of sections 72 and 2(101)(b). Section 76 has its own computation and does not specify a lot method; confirm the applicable treatment for the transaction before accepting a broker’s lot label.
Bridge cash to gross consideration
Trace the issuer or broker statement to the bank receipt. Deductions in the cash settlement do not by themselves reduce consideration. A withholding entry must be separated from a qualifying transfer expense. Identify independently payable coupon or interest from instrument terms, rather than treating the total bank receipt as consideration. Where the contract establishes a premium as part of the redemption consideration for the computation, include it once. A payment's label alone does not settle its character.
Reconcile accounting and tax figures
A financial statement may carry the asset at a different value from its supported acquisition cost. Bridge the accounting disposal result to the tax computation without silently deducting prior fair-value changes, the original face amount or a book impairment. Exclude unrelated overhead and recheck any charges already reflected in the reconciliation. This guide addresses the gain computation for capital assets. Securities held as trading inventory and instruments with unresolved listing status or payment character require a separate analysis.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Secondary sale
A company sells an identified lot for ₹12,60,000. Documented acquisition cost is ₹11,80,000 and an eligible selling fee is ₹10,000. Section 76 gain is ₹70,000.
Illustrative example 2: Withholding bridge
The issuer shows gross redemption consideration ₹8,40,000 and a stipulated withholding of ₹15,000. Cash is ₹8,25,000. Cost is ₹8,00,000 and there is no eligible fee. Gain is ₹40,000 using gross consideration.
Illustrative example 3: Old purchase, current maturity
An unlisted debenture acquired on 10 June 2023 for ₹9,10,000 matures on 30 June 2026 for ₹10,00,000. With no eligible expenditure the deemed short-term gain is ₹90,000. The earlier purchase date does not exclude this maturity.
Illustrative example 4: Identified lot only
A holding comprises 70 units acquired at ₹9,200 and 50 acquired at ₹9,800. Assume these are individually identifiable certificated holdings, no depository FIFO rule applies, and the buyer acquires all 50 units in the second lot. Gross sale price is ₹10,200 per unit and the eligible fee is ₹2,000. Consideration ₹5,10,000 less cost ₹4,90,000 and fee yields ₹18,000. The first lot's ₹6,44,000 cost remains with that lot.
Illustrative example 5: Face amount versus purchase
A corporate investor bought a debenture with face amount ₹10,00,000 for ₹9,60,000. It redeems for ₹10,00,000 and receives a separately stipulated coupon ₹30,000. With no fee, the gain on redemption is ₹40,000; the coupon is taken out of this exit computation.
Illustrative example 6: Unrelated cost
Gross proceeds are ₹5,01,000 against cost ₹5,00,000 and a qualifying exit fee of ₹1,000. A portfolio administration charge of ₹6,000 is unrelated to the event. The exit gain is nil; the general charge cannot manufacture a ₹6,000 loss under this calculation.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Establish capital asset classification | Investment policy, books and transaction facts. |
| 2 | Identify instrument and listing status | ISIN, issuer terms and exchange or custodian record. |
| 3 | Establish relevant event and date | Transfer contract or issuer maturity notice. |
| 4 | Pick correct enactment for the period | Tax-year versus assessment-year control. |
| 5 | Reconcile units exited to original lots | Custodian positions and documented acquisition trail. |
| 6 | Verify full consideration received or accruing | Contract and issuer or broker settlement. |
| 7 | Separate separately payable interest and withholding | Term sheet, payout statement and certificate. |
| 8 | Test claimed transfer costs and STT exclusion | Invoices and evidence of connection to the event. |
| 9 | Bridge accounting result to tax result | Disposal ledger and acquisition cost reconciliation. |
| 10 | Review closing lots and archive sign-off | Opening to closing unit and cost roll-forward. |
Sixteen practitioner FAQs
1. Does buying before July 2024 exclude a 2026 maturity?
No. The date condition is on the specified exit event.
2. What if the bond was held for three years?
Section 76 can still deem the exit gain short-term.
3. Is every debt security an unlisted bond?
No. Identify the legal instrument and listing status.
4. Can I apply this to a debt mutual fund unit?
Not under the unlisted bond limb. Review the separate statutory classification.
5. Does the bank credit define consideration?
Use the full contractual amount received or accruing and reconcile the cash.
6. Is withholding a sale expense?
A deduction for withholding does not establish expenditure qualifying under section 76.
7. May I deduct STT if charged?
No. Subsection (4) expressly excludes it.
8. Is face value always the cost?
No. Check acquisition evidence and any applicable statutory cost rule.
9. Is the fair value at the last reporting date cost?
A carrying value alone does not establish tax cost.
10. Can I deduct fees from my annual custody invoice?
Only a qualifying event expense belongs in this calculation. Substantiate the link.
11. How do I deal with a gross receipt including a coupon?
Separate independently payable interest using the instrument and settlement evidence.
12. What if a redemption premium is disputed?
Confirm its legal character before finalising the computation; do not rely on the label.
13. Can I use the oldest lot by preference?
Use the applicable identification method and document it. For a depository transfer, check the scope of the statutory first-in, first-out rule before adopting a cost allocation.
14. Should I remove cost for retained units?
No. Carry their supported cost forward separately.
15. Does this establish the tax rate?
No. The deemed classification and computation are separate from the applicable rate and overall tax calculation.
16. What if the bond is stock-in-trade?
Review business income treatment rather than assuming this capital asset computation applies.