Chapter IV - Computation of Total Income
Section 76
Section 76: special provision for computation of capital gains in case of Market Linked Debenture
Section 76 overrides the ordinary short-term/long-term classification for a specific list of debt-like instruments - Market Linked Debentures, units of a "Specified Mutual Fund" acquired on or after 1 April 2023, and unlisted bonds or debentures transferred/redeemed/matured on or after 23 July 2024 - by always treating the resulting gains as short-term capital gains, computed without indexation.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Irrespective of anything contained in section 2(101) or section 72, the gains on the transfer or redemption or maturity, of a capital asset as mentioned in sub-section (2) shall be treated as short-term capital gains and shall be computed as per sub-section (3).
(2) For the purposes of sub-section (1), the capital asset shall be— (a) a unit of a Specified Mutual Fund acquired on or after the 1st April, 2023 or a Market Linked Debenture; or (b) an unlisted bond or an unlisted debenture which is transferred or redeemed or matures on or after the 23rd July, 2024.
(3) For the purposes of sub-section (1), the short-term capital gains shall be computed as per the following formula:— X = A – B – C, where,— X = short-term capital gains; A = full value of consideration received or accruing as a result of the transfer or redemption or maturity of the debenture or unit or bond; B = the cost of acquisition of the debenture or unit or bond; and C = the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity.
(4) In computing capital gains under sub-section (3), no deduction shall be allowed for any sum paid as securities transaction tax as per Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004).
(5) For the purposes of this section,— (a) ‘Market Linked Debenture’ means a security, by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices, and include any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India; (b) ‘Specified Mutual Fund’ means a Mutual Fund, by whatever name called, which invests more than 65% of its total proceeds in debt and money market instruments or a fund which invests 65% or more of its total proceeds in units of such Mutual Fund, subject to the following:— (i) the percentage of investment in debt and money market instruments or in units of a fund shall be computed with reference to the annual average of the daily closing figures; (ii) ‘debt and money market instruments’ shall include any securities, by whatever name called, classified or regulated as debt and money market instruments by the Securities and Exchange Board of India.
Introduction
Market-linked debentures and specified debt-oriented units or unlisted bonds follow a forced short-term capital-gains computation, regardless of an ordinary holding-period analysis.
Key takeaways
Specified debt instruments
Gains on transfer, redemption or maturity of a market-linked debenture, qualifying specified-mutual-fund unit, or qualifying unlisted bond or debenture are treated as short-term capital gains.
Computation
The section subtracts acquisition cost and exclusive transfer, redemption or maturity expenditure from consideration; securities transaction tax is not deductible.
Which assets this section covers
Section 76(2) applies this section's treatment to:
- A unit of a "Specified Mutual Fund" acquired on or after 1 April 2023, or a Market Linked Debenture; or
- An unlisted bond or unlisted debenture which is transferred, redeemed, or matures on or after 23 July 2024.
The computation
Section 76(1) and (3) treat the gains on transfer, redemption or maturity of these instruments as short-term capital gains, computed by the formula: consideration received or accruing, minus cost of acquisition, minus expenditure wholly and exclusively incurred in connection with the transfer/redemption/maturity.
Section 76(4) disallows any deduction for securities transaction tax paid under Chapter VII of the Finance (No. 2) Act, 2004, in this computation.
Key definitions
- "Market Linked Debenture" - a security with an underlying principal component in the form of a debt security, where returns are linked to market returns on other underlying securities or indices, including any security SEBI classifies or regulates as such.
- "Specified Mutual Fund" - a mutual fund that invests more than 65% of its total proceeds in debt and money market instruments, or that invests 65% or more of its proceeds in units of such a fund, with the percentage computed on the annual average of daily closing figures.
Step-by-step flow for applying Section 76
- 1
Is the asset one of those listed in Section 76(2)?
A unit of a Specified Mutual Fund acquired on or after 1 April 2023; a Market Linked Debenture; or an unlisted bond or unlisted debenture transferred, redeemed or maturing on or after 23 July 2024.
- No: Use the ordinary capital-gains rules.
- Yes: Go to the next step.
- 2
Treat the gain as short-term capital gains
This applies irrespective of Section 2(101) or Section 72, so the holding period does not change the character.
- 3
Compute X = A − B − C
A = consideration on transfer, redemption or maturity; B = cost of acquisition; C = expenditure wholly and exclusively in connection with the transfer, redemption or maturity.
- 4
Exclude securities transaction tax
Section 76(4) allows no deduction for securities transaction tax paid under Chapter VII of the Finance (No. 2) Act, 2004.
Practical checklist
Do
- Identify whether the instrument and acquisition or transfer date meet the exact subsection (2) category.
- Compute proceeds less acquisition cost and wholly transfer-connected expenditure under the statutory formula.
Avoid
- Do not treat a long holding period as sufficient for long-term treatment under this special rule.
- Do not deduct securities transaction tax in the Section 76 computation.
Illustrative example
Worked example: redemption of an unlisted debenture
Hypothetical facts (illustration only, not a real taxpayer): Ms. Das bought an unlisted debenture for ₹10,00,000 and held it for four years. It is redeemed in tax year 2026-27 for ₹10,80,000. She pays ₹5,000 in charges wholly and exclusively in connection with the redemption.
Is the asset covered?
An unlisted debenture redeemed in tax year 2026-27 (that is, on or after 23 July 2024) falls in Section 76(2)(b).
Apply the formula
X = ₹10,80,000 − ₹10,00,000 − ₹5,000 = ₹75,000.
Character
The ₹75,000 is short-term capital gains even though the debenture was held for four years.
Outcome
- Short-term capital gains of ₹75,000 arise in the year of redemption.
- If any securities transaction tax had been paid, it could not be deducted in this computation.
Glossary
- Market Linked Debenture
- A debt security whose return is linked to market returns on other securities or indices, as defined here.
- Specified Mutual Fund
- A fund meeting the prescribed debt-and-money-market investment test for this section.
Frequently asked questions
Are gains on Market Linked Debentures always short-term capital gains?
Yes - Section 76(1) deems gains on transfer, redemption or maturity of a Market Linked Debenture to be short-term capital gains, irrespective of the actual holding period.
From when do unlisted bonds/debentures fall under this rule?
For transfers, redemptions or maturities on or after 23 July 2024, per Section 76(2)(b).
Can I claim indexation or an STT deduction on these instruments?
No - Section 76(4) specifically disallows deducting securities transaction tax, and since the gain is always short-term, indexation (which only applies to long-term gains) is not available.
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Get expert help on your debenture and mutual fund tax treatmentLast updated 10 October 2026