Section 76 Income Tax Act 2025: How Are Market Linked Debentures Taxed?
Section 76 creates a special capital gains computation rule for market linked debentures, qualifying specified mutual fund units, and unlisted bonds or debentures. Gains covered by this provision are treated as short-term capital gains, regardless of the usual holding-period classification.
Reviewed: 10 November 2026 | Chapter IV - Computation of Total Income | Capital Gains
Which investments are covered by Section 76?
Section 76(2) identifies the following capital assets:
- Units of a Specified Mutual Fund acquired on or after 1 April 2023.
- Market Linked Debentures, as defined in Section 76(5)(a).
- Unlisted bonds and unlisted debentures transferred, redeemed or maturing on or after 23 July 2024.
The precise statutory definition of a Specified Mutual Fund is important: not every mutual fund, and not every investment marketed as a debt fund, automatically falls within Section 76.
Explanation of Section 76(1) to 76(5)
Section 76(1): Mandatory short-term capital gains treatment
Despite the general classification rule in Section 2(101) and the ordinary computation provisions in Section 72, gains arising on transfer, redemption or maturity of an asset covered by Section 76(2) are treated as short-term capital gains. The special formula in Section 76(3) applies.
Section 76(2): Eligible capital assets
The provision separately specifies acquisition dates for units of Specified Mutual Funds and transaction dates for unlisted bonds and debentures. The Market Linked Debenture category is separately identified without an equivalent acquisition-date condition in this subsection.
Section 76(3): Computation
The capital gain is calculated by deducting the cost of acquisition and qualifying transfer, redemption or maturity expenses from the full value of consideration.
Section 76(4): Securities transaction tax excluded
No deduction is permitted for securities transaction tax paid under Chapter VII of the Finance (No. 2) Act, 2004 when calculating gains under this section.
Section 76(5): Meaning of key expressions
This subsection defines Market Linked Debenture and Specified Mutual Fund, including the measurement basis for the required investment percentages.
How to calculate short-term capital gains under Section 76
X = short-term capital gains
A = full consideration received or accruing on transfer, redemption or maturity
B = cost of acquisition of the debenture, unit or bond
C = expenditure incurred wholly and exclusively in connection with that transfer, redemption or maturity
Ordinary long-term capital gains treatment and indexation cannot be substituted for this special computation where Section 76 applies. The tax rate is determined under the applicable charging and rate provisions; Section 76 itself supplies the classification and calculation, not a standalone tax rate.
Relevant statutory definitions
Illustration: Redemption of a Market Linked Debenture
Suppose an investor acquires a Market Linked Debenture for Rs. 8,00,000. On maturity, the investor receives Rs. 10,20,000 and incurs Rs. 5,000 of qualifying redemption-related expenditure.
| Particulars | Amount (Rs.) |
|---|---|
| Full value of consideration (A) | 10,20,000 |
| Cost of acquisition (B) | 8,00,000 |
| Qualifying expenditure (C) | 5,000 |
| Short-term capital gains (X) | 2,15,000 |
Result: Rs. 2,15,000 is treated as short-term capital gains under Section 76, even if the debenture was held for a period that would ordinarily produce long-term capital gains.
Practical implications for taxpayers and advisers
- Verify the legal nature of the instrument, not merely its marketing description.
- Check the acquisition date for Specified Mutual Fund units and the transfer, redemption or maturity date for unlisted bonds and debentures.
- Preserve contract notes, allotment letters, redemption statements, acquisition-cost evidence and invoices for eligible expenses.
- Do not deduct securities transaction tax in computing gains under this provision.
- Check the applicable tax-year rate provisions and any relevant treaty implications separately.
Frequently asked questions
Are Market Linked Debenture gains always short-term capital gains?
Where the instrument satisfies Section 76(5)(a) and the gain falls under Section 76, the gain is treated as short-term capital gains under Section 76(1), regardless of the ordinary holding period.
Does Section 76 apply to every debt mutual fund?
No. The fund must satisfy the definition of Specified Mutual Fund in Section 76(5)(b), and the relevant unit must have been acquired on or after 1 April 2023.
Are all unlisted bonds covered?
Section 76(2)(b) covers unlisted bonds and unlisted debentures transferred, redeemed or maturing on or after 23 July 2024. Other applicable legal provisions and the actual nature of the instrument should also be considered.
Can securities transaction tax be claimed as an expense?
No. Section 76(4) expressly disallows that deduction in the Section 76 computation.
Which provision of the Income-tax Act, 1961 corresponds to Section 76?
Section 50AA of the Income-tax Act, 1961 is the corresponding earlier provision.
Official legislation and related reading
For authoritative statutory wording, consult the Income Tax Department's Section 76 text and the Income-tax Act, 2025 legislative resource. External references appear in the article body only, not the navigation menu.
This article provides general statutory information and should be read with the law applicable to the relevant tax year and transaction.