SEBI Regulation 62A NCD Compliance 2026 - Transfer Rules

What Happened?

SEBI (Securities and Exchange Board of India) has clarified compliance requirements under Regulation 62A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The clarification specifically addresses situations where a debt-listed entity assumes outstanding unlisted Non-Convertible Debenture (NCD) obligations from another entity as part of corporate restructuring or acquisition. This is a significant ruling for businesses engaged in mergers, acquisitions, and debt restructuring, particularly relevant for Assessment Year 2026-27 income tax filings.

Background & Legal Context

To understand this clarification, you need to know three key things:

What is Regulation 62A?

Regulation 62A under SEBI LODR Regulations governs disclosure and compliance requirements when listed entities take on new debt obligations or transfer existing ones. The regulation requires:

• Immediate disclosure to stock exchanges
• Filing with regulatory bodies
• Clear documentation of assumption of liabilities
• Investor protection measures for debenture holders

What are Unlisted NCDs?

Non-Convertible Debentures (NCDs) are debt instruments that cannot be converted into equity. Unlisted NCDs are NCDs not traded on stock exchanges but issued directly to investors. When a listed company assumes these obligations, SEBI compliance becomes mandatory.

Income Tax Act 2025 Connection

Under the Income Tax Act, 2025, Section 43CA (relating to debt deduction rules) and Section 36(1)(vii) (interest deduction on borrowed funds) directly impact how companies claiming deductions on assumed NCD obligations must report transactions. The new IT Act 2025 has strengthened disclosure requirements for debt restructuring (Section 92E relating to transfer pricing documentation for debt assumptions).

The old Income Tax Act, 1961 provisions on debt deduction remain applicable for AY 2026-27 where IT Act 2025 amendments are not yet fully effective, creating a dual-compliance scenario for many corporates.

What Does This Mean for You?

For Listed Companies Assuming Unlisted NCDs

If your company acquired or assumed unlisted NCD obligations during corporate restructuring:

• SEBI Compliance First: You must file Regulation 62A disclosures with SEBI before or simultaneously with income tax returns. Non-compliance can result in SEBI penalties up to ₹5 crore.
• Income Tax Deductibility: Interest payments on assumed NCDs are deductible under Section 36(1)(vii), IT Act 2025, provided SEBI disclosure is complete. Without SEBI compliance, the Income Tax Department may deny deduction during assessment.
• Transfer Documentation: For AY 2026-27, if the NCD assumption qualifies as a related-party transaction or involves transfer pricing implications, Section 92E documentation becomes mandatory. The arm's length principle applies to interest rates on assumed NCDs.

For Debenture Holders

If you hold unlisted NCDs and the issuing company is transferring your debentures to a listed entity:

• Your tax position as the creditor remains unchanged—interest income is taxable under Section 5 (income from other sources).
• The legal creditor changes, which impacts your credit rating analysis of the obligor.
• You should receive formal intimation from both the original issuer and the new obligor (the listed entity).

For Private Companies Issuing Unlisted NCDs

If you issued unlisted NCDs that a listed company has now assumed:

• You must disclose this assumption in your income tax return under Schedule A (Balance Sheet items) for AY 2026-27.
• Any gain or loss on transfer of the debt liability must be separately calculated under Section 41(1) (gain from transfer of liability) or Section 36(1)(vii) (interest deduction reversal).
• GST implications may arise if the NCD transfer is treated as a financial service. GST at 18% may apply to assumption fees charged by the listed entity, though debt instruments themselves are exempt supplies under GST law.

Critical Compliance Gap: SEBI + Income Tax Coordination

The SEBI clarification highlights an important gap: SEBI compliance alone does not guarantee Income Tax acceptance. The Income Tax Department may independently challenge:

• The genuine business purpose of the NCD assumption
• Whether interest rates are at arm's length (transfer pricing)
• Whether the assumption is actually a debt restructuring disguised as a corporate action

If the Income Tax Department suspects that the NCD assumption is a sham transaction to shift profits or manipulate depreciation base (in case of asset-backed NCDs), it may invoke anti-avoidance rules under Chapter X-A, IT Act 2025.

What Should You Do Now?

Immediate Actions (Next 30 Days)

1. Audit SEBI Compliance: Review all NCD assumptions completed in FY 2025-26 and FY 2026-27. Verify that Regulation 62A disclosures were filed timely with stock exchanges and SEBI.
2. Gather Documentation: Collect
   • Board resolutions approving NCD assumption
   • SEBI filings and acknowledgments
   • Debenture trust deed amendments
   • Creditor consent letters
   • Interest rate calculation worksheets
3. Review Interest Rates: Ensure interest rates on assumed NCDs reflect market rates. If rates appear abnormal, prepare transfer pricing documentation under Section 92E showing comparable transactions.

For AY 2026-27 Income Tax Return Filing

1. Schedule AL Disclosure: In Form ITR-4 (if you're a corporate), Schedule AL (Financial Assets and Liabilities) must clearly show assumed NCD liabilities with SEBI filing reference numbers.
2. Deduction Claim: Claim interest deduction under Section 36(1)(vii) with proper supporting documentation and SEBI compliance proof.
3. Transfer Pricing Documentation: If NCD assumption involves related parties or cross-border elements, file Form 3CEB (Transfer Pricing Certificate) along with ITR.
4. Advance Ruling Consideration: If the transaction is complex or involves new taxpayers, consider filing an Advance Ruling application under Section 245O, IT Act 2025, to obtain certainty before assessment.

Ongoing Compliance (Quarterly/Annual)

• Maintain a register of assumed NCDs with issuer details, amount, interest rate, SEBI filing date, and income tax reporting reference.
• Reconcile SEBI disclosures with income tax schedules every quarter.
• Monitor SEBI circulars for any amendments to Regulation 62A compliance procedures.
• If you're a debenture trustee, ensure you receive all Regulation 62A disclosures and maintain them for 6 years (as per Record Retention Rules, IT Act 2025).

Key Takeaways

• SEBI Regulation 62A is now mandatory for any listed entity assuming unlisted NCD obligations. Non-compliance invites SEBI action and potential income tax scrutiny.
• Interest deduction under Section 36(1)(vii), IT Act 2025 is only allowed if SEBI Regulation 62A compliance is demonstrated. Keep SEBI filing reference numbers in tax records.
• Transfer Pricing Rules (Section 92E) apply to NCD assumptions involving related parties or where interest rates appear abnormal. Prepare comparability studies proactively.
• Debt restructuring disguised as NCD assumption may trigger anti-avoidance provisions (Chapter X-A). Ensure genuine business purpose is documented and independently verifiable.
• GST at 18% applies to assumption fees or restructuring charges paid to intermediaries, though the NCD transfer itself is an exempt supply.

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