If I buy a cumulative NCD with FV of ₹1,000 and coupon rate of 10 per cent in 2014, hold it for 2 years and sell it at BSE at ₹1,050, will I get the accrued interest during these 2 years? Do I need to declare the accrued interest in my tax return for these 2 years?
- Moorthi
Non-Convertible Debentures are issued when a company would like to borrow funds from the public. They are issued for a specific time period with fixed interest rate. There are various modes of interest payout, quarterly, annually or at the time of maturity. NCDs as the name suggest cannot be converted into equity share of company at any time.
You are holding a cumulative NCD which pays interest at the time of maturity. If you sell the NCD before maturity in the secondary market you will not receive any interest. You will be entitled to the selling price only. If you make any capital gains, they will be taxed accordingly. If sold within 12 months of purchase, short term capital gains will be added to your income and taxed as per the applicable slab rate. If sold after completion of one year, long term capital gain will arise and will be taxed at 10.30%.
You need not declare the accrued interest in your tax return for the years before maturity. It will be simply added to your income under the head Income from Other Sources and taxed as per the applicable income tax slab rate.
This article was originally published on July 04, 2014.
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