Answer

HNI wealth · Structured Product

Market-linked debentures: how they work and why they're taxed as debt

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  1. Facts

    Market-Linked Debentures (MLDs) were a popular HNI product, debentures whose return is linked to an index or basket. Before Finance Act 2023, gains on MLDs held 12+ months were taxed as LTCG at 10%.

  2. Provisions and law

    • IT Act, Sec 2(29A) | Finance Act 2023

  3. Analysis

    Finance Act 2023 changed this fundamentally: All MLDs are now taxed as short-term capital gains at slab rate regardless of holding period. The preferential LTCG treatment is gone. Effective tax on MLDs for a 30% slab investor = 30.9%+, making them significantly less attractive than before. What replaced MLDs: Structured credit products, senior secured debt AIFs (Category II), and market-linked bonds from NBFCs. Each has different tax treatment, check before investing.

  4. Conclusion

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Debt mutual fund and specified mutual fund gains, Sec 76 (old 50AA)

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