I had bought 25 deep discount bonds of Sardar Sarovad Nigam Ltd for Rs. 22500/- per bond on 26/11/2001 with the intension to get redemption amount of Rs. 111000/- in the year 2014. Now company has compulsory repaying Rs. 50000/- per bond on 10/01/2009. Sir please let me know the tax implication for the same case 1 if I get redemption amount of Rs .50000/- & Case 2 if I sale the said bond in the stock market. Shall I eligible for the long term capital gain on the buy / sale difference (calculating indexation cost)? Jagesh Shah
Two kinds of income is the possibility in case of deep discount bond.
1. If the there is redemption of deep discount , the difference in amount of redemption and issue price is taxed as "income from other source ‘ by considering the difference as "interest’ .
2.Deep discount bonds are capital asset . However , if the redemption takes place by the issuing company , the difference This is as per circular of CBDT.
What is best step for tax planning ?
If you find that total interest puts you in 30 % tax rate , it is better to sale the bond in the market because in that case there arise long term gains which is taxed at 20 % rate only. Remember there is no indexation facility in case of bonds and debenture .Another benefit is that you can claim exemption u/s 54F and 54EC which is not available in case the income is earned as interest.
Are you worried that you did not offer the interest every year?
Then read How To Save Tax In Case Of Deep Discount Bond? posting which will reveal that for bonds issued before 15/2/2002 , it was not necessary to show interest every year as per accrual method.
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