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Capital gains/loss on tax-free bonds

Short term capital gains are added to the income and taxed as per the Income Tax slab applicable to the investor

What are the implications of long term capital gains and long term capital loss on tax-free bonds?
- Santoshkumari Jain

Tax-free bonds typically come with a lock-in period of 10 to 20 years. The amount invested in these bonds are not returned before the end of the lock-in period. However, these bonds are listed on stock exchanges and investors can sell them on exchanges if they want to exit early. The gains, if any, on sale of these bonds would be taxed as capital gains.

If the bonds are sold before three years, the gains would be treated as short term capital gains. Short term capital gains are added to the income and taxed as per the Income Tax slab applicable to the investor. If investments are sold after three years, the gains qualify for long term capital gains tax of 20 per cent with indexation benefit. Long term capital loss arising out of sale of assets can be set off against long term capital gains arising from sale of any asset. However, long term capital loss from sale of shares and mutual funds where Securities Transaction Tax (STT) is paid can't be set off against any other capital gains. Long term capital loss can be carried forward for eight years.

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