Section 76 of the Income-tax Act, 2025 — Capital Gains on Market Linked Debentures, Specified Mutual Funds and Unlisted Bonds (Cost of Acquisition of Debentures/Bonds)

In plain language

What Section 76 actually deals with

Section 76 of the Income-tax Act, 2025 is the special provision that decides how capital gains are computed — and taxed — on three specific instruments: Market Linked Debentures (MLDs), Specified Mutual Funds (debt-heavy funds), and unlisted bonds and debentures. It is the direct successor to Section 50AA of the Income-tax Act, 1961. Although the topic here is framed as "cost of acquisition of debentures/bonds", the cost of acquisition of these instruments is not computed under the general rules — it feeds into the special formula laid down in Section 76.

The headline effect is simple but harsh: whatever gain you make on these instruments is always treated as Short-Term Capital Gain (STCG), no matter how long you held them. There is no long-term treatment, no indexation, and no 12.5% concessional LTCG rate. The gain is added to your total income and taxed at your normal slab rate.

The computation formula

Section 76 deems the full value of consideration less the cost of acquisition and transfer expenses as STCG. The formula is:

• X = A − B − C
• X = the short-term capital gain
• A = full value of consideration received or accruing on transfer, redemption or maturity
• B = the cost of acquisition of the debenture, unit or bond
• C = expenditure incurred wholly and exclusively in connection with the transfer, redemption or maturity (e.g. brokerage)

No deduction is allowed for Securities Transaction Tax (STT) paid on the transaction. Because there is no long-term category, indexation (cost inflation adjustment) is simply not available — the "cost of acquisition" is taken at its plain purchase price.

Who and what it applies to

• Market Linked Debentures — SEBI-regulated debt securities whose returns are linked to a market index or underlying security rather than a fixed coupon. Covered irrespective of the acquisition date.
• Specified Mutual Funds — broadly, debt-oriented funds. Post the Finance Act, 2024 alignment, a Specified Mutual Fund is one that invests more than 65% of its total proceeds in debt and money market instruments (or in units of such funds). Only units acquired on or after 1 April 2023 are hit by this provision.
• Unlisted bonds and debentures — where they are transferred, redeemed or mature on or after 23 July 2024, the gain is deemed STCG under this provision.

Key conditions and limits

• Holding period is irrelevant — even if you held the instrument for 10 years, the gain is STCG.
• No indexation benefit — you cannot inflate the cost of acquisition.
• No concessional LTCG rate — the 12.5% LTCG rate under Section 198 (the 2025 Act's LTCG rate provision, successor to Section 112/112A of the 1961 Act) does not apply.
• STT is not deductible in computing the gain.
• Equity-oriented funds are outside this net — a fund investing more than 35% in domestic equity shares is not a "Specified Mutual Fund" and follows normal equity taxation.

How it interacts with related sections

Section 76 overrides the general capital-gains machinery. The general cost of acquisition rules and the definition of "transfer" still supply the building blocks (B and the trigger event), but the character of the gain and the method of computing it are fixed by Section 76. Because the output is STCG taxed at slab rates, the LTCG and STCG rate provisions of the 2025 Act do not give any relief. Exemptions available for long-term gains (such as reinvestment reliefs) are not available, since there is no long-term gain to exempt.

Practical implications

• For a taxpayer in the 30% slab, a gain that might once have been taxed at 12.5% (as LTCG) is now taxed at 30% plus surcharge and cess.
• Debt fund investors and MLD holders lose the earlier planning advantage of holding long-term for a lower rate.
• Keep clean records of your purchase cost (B) and transfer expenses (C) — these are the only two deductions the formula permits.
• The provision closes the earlier gap where high-net-worth investors used MLDs to convert interest-like returns into lightly taxed capital gains.