Investors could now become less enthusiastic about investing in unlisted bonds and debentures, debt mutual funds, and market-linked debentures. The reason is the Union Budget 2024 announcement that investments in these financial instruments will attract tax on capital gains at applicable rates, irrespective of the holding period.
Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India, said, “Bringing unlisted debentures and unlisted bonds under the ambit of section 50AA of the Act will increase the tax burden for the investors as the proposed tax would be on applicable rates.” The market participants would now have to shell out more tax, he added.
Dhawal Dalal, President & CIO-Fixed Income, Edelweiss MF, observed that taxation on fixed deposits, debt mutual funds, bonds and market-linked bonds is unchanged and this too is a bit damper for fixed income investors.
Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap LLP, noted that this budget proposal is likely to positively impact listed bond issuances by shifting investor preference towards more tax-efficient listed instruments, thereby encouraging issuers to opt for listings and contributing to greater market liquidity, comes under regulatory supervision, proper reporting of financial statements and transparency.
On the other side, issuers of unlisted bonds might need to offer higher yields to compensate for the less favorable tax treatment, thus making listed bonds relatively more attractive in terms of risk-adjusted returns.
“Issuers might need to reconsider their capital-raising strategies, potentially favoring listed bonds and other instruments that offer more favorable tax treatments for investors,” he said.
Published on July 23, 2024
Leave a comment