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Bonds & NCD
Bonds are more or less the same as debentures. Generally term bond is used to public debt securities belonging to government and PSU's.
Capital Gain Bonds (54 EC Bonds)
These bonds are specifically for investors who have made some long term capital gains, and would like to save capital gain taxes on this amount. Capital Gain Bonds are instruments offering you tax exemption for transferring gains of long term capital assets. As per provisions of IT act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax u/s 54 EC of the act.
Features of Capital Gain Bonds
Capital realized is invested within 6 months of the date of transfer is eligible.
Tenure is 3 Years. To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond with 3 years from date of acquisition else, the benefit would be withdrawn.
These bonds are classified as "long-term specified asset" and are issued by NABARD, REC, NHAI, NHB and SIDBI.
The interest from these bonds is fully taxable.
Short term gains are not covered under section 54EC.
Tax Free Bonds
Tax Free Bonds are instruments where interest earned is not taxed. It means regular income received is tax free to investor. These bonds will be eventually listed on the Bombay and National Stock Exchange, so investors will have the option of selling them before the full term of the bond.
Government of India Bonds (Taxable Bonds)
Popularly known as G-Secs. Just as companies borrow money from markets by issuing debentures, GOI does so by issuing G-Secs. G-Secs are more secure investment as they represent a guarantee by the Central Government
Non Convertible Debentures (NCD) - are those debentures which are not convertible to equity shares. A NCD can be a secured NCD and unsecured NCD. Secured Non convertible Debentures (NCD) are backed by some assets which can be liquidated for paying off the bond holders in case of default. For this reason, the returns on secured NCDs are lower than unsecured NCDs. Unsecured Non convertible Debentures (NCD) are the ones which are not backed by any assets and incase company is in financial crunch, there can be delay or default in paying back the bond holders.
Features of NCD's
They are listed on stock exchanges. Hence, provides liquidity to holder.
The tenure of NCDs can be anywhere between 2 years and 20 years.
NCDs are rated by rating agencies such as CRISIL.
If you buy a NCD that pays interest then the interest will not attract TDS.
The debentures are generally offered in four options: monthly, quarterly, annual and cumulative interest
Taxation on NCD - Taxation on NCDs is just like debt funds. If you sell your debentures before a year, the profits will be added to your income and you will pay taxes at the same rate as per your income tax slab. But for any profit made by selling it after a year, you will pay tax of 10%, if indexation is not done, or 20% if the indexation is done.