will long term capital loss be calculated on tax free bonds bought at a premium and redeemed at face value? - will long term capital loss be calculated on tax free bonds bought at a premium and redeemed at face value? - Ask the Expert - Fee Only Investment Advisers

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will long term capital loss be calculated on tax free bonds bought at a premium and redeemed at face value?

Hi. A client wants tax free bonds. Some bonds available in the secondary market are traded at a premium. Assuming I buy a 8% coupon bond that matures in 2023 at Facevalue 1000 Rs for Rs.1130/- today – will the Rs.80/- receivable in 2022 and 2023 be tax free? Can I claim short term capital loss on purchase and sale of the bond?

The period for considering long term for listed bonds is only 1 year not 3 years (as per first proviso to section 2(42a)
The interest stripping provisions under section 94(7) become applicable only if the tax free bond is bought within 3 months before the record date and sold within 3 months of the same record date