I have purhcased DHANILOANS-N8 NCD (ISIN INE614X07092) @1550 on 03-10-2023.
Its maturity date was 08-03-2024 and on maturity Rs. 1686.26 has to be paid on each NCD. Yesterday, I received amount but when I calculated, I found out to be Rs. 1617.62 only. I then realized that the company has deducted TDS on whole amount. Its issue price was 1000.
So total interest would be 686.26 per NCD and Rs. 68.26 per NCD is deducted as TDS. No problem in it. But I had purchased it @1550 and that too only a few months back, so why my purhcase it being treated as Rs. 1000 per NCD.
Also, in my earlier post of PFC NCD interest (PFC Debenture received but 10% less - #4 by Aditya_Gupta), still I haven’t received any information from company regarding TDS neither TDS deduction is showing in TRACES/FORM 26AS. This new process is making investment in NCD complicated.
why couldn’t they just pay the whole amount and let taxpayer decide the amount of tax. Suppose if anyone purchases bond 1 week before at 1650. Instead of profit, he will be in loss due to TDS. Sometimes there are 4-5 different bonds maturing in a year, so it will be a headache checking how much TDS is there, is it showing under 26AS, how will it get refunded etc. etc.
Because it generates a steady source of income for the government. Otherwise they will get a huge lumpsum at the end of the year, and have to borrow throughout the year.
And people will find 100 ways to avoid paying at the end of the year.
Why will you be in loss? You’re supposed to calculate the returns and then bid a amount suitable to you.
If you overpay for something how is it the governments fault lmao. Calculate the interests and XIRR and decide a suitable bid.
At the end the original 1000 amount of the bond will be credited to your amount right.
Also, I’m not understanding how you paid 1500 something. How come the bond price is going on increasing when the interest to be paid decreases as time passes on? It should start at bond value + interest and keep going down as interest installments are paid right? I am new to bonds so not able to understand why price keeps increasing. Since the payments to be made by the NBFC goes on decreasing.
That is not any different from the headache calculating the tax you owe. Atleast with TDS you have a list of stuff you have earned in the year. Headache is less actually. Imagine something didn’t come up in 26AS and you forgot to file it.
It won’t show in 26AS immediately. They update quarterly maybe. Just check after March right. If TDS doesn’t show up but it is deducted it is not your fault
You can avoid all this by bidding only in primary markets and not secondary market. The bid-ask spread is always a headache due to low liquidity in bonds.
there are some bonds which are called as zero coupon bonds. These types of bonds didn’t pay interest monthly, quarterly or annualy rather interest is accumulated till the maturity of the NCD and paid at the time of maturity. So, in my example Dhani issued Rs. 1000 NCD on 08-03-2019 and didn’t paid interest in last 5 years. On maturity, it is paying all interest and maturity, i.e. 1686.
If you bought at 1550 and got 1600, your logic is that tds would be 60 and it’s a loss.
But TDS is on profits only. So your profit is 50, and when you report income as only â‚ą50 per NCD, the TDS is adjusted with other incomes or is paid back right.
Also, I read an article saying that TDS is not applicable for demat NCDs. Are you sure it was TDS?
That actually makes a lot of sense since they can’t accurately report the PAN of the person on whom TDS was done due to daily trades.
I replied to you in earlier query too, TDS filing happens at end of quarter or early next quarter (from date of payment.)
Have patience. You putting up multiple queries will not fasten the process
Frankly the process is not new, but yes if you don’t fully understand it, it will look complicated.
This reiterate my feeling that you are new to the process of investing in NCD. When you buy NCD from secondary market and hold till redemption, you will have two kinds of income.
Interest income, which calculated from principal (and not your investment price) which is Rs. 686.26. On which you are liable to pay tax at your slab rate, and hence TDS is deducted on full interest income
A capital gain/loss (depending on holding, either long term or short term) which can be adjusted again capital loss/gains (and not interest income)
By correctly filing ITR
Nope. TDS is not on profit. In this case TDS is on interest income
Article is incorrect. TDS is also applicable on demat NCDs, if interest income crosses a threshold.
These are NOT Zero coupon bonds. What you have invested in are interest bearing bonds with interest paid cumulatively at end of tenure.
A ZCB has no interest offered but are sold at discount to face value.
It might look same but there is a difference from taxation point of view.
Oh okay, seems like a recent change as per other posts in the forum.
But in his case profit (interest) is just 50 whatever, so it does not matter what the actual interest is right. He will be able to get it back as a refund no?
Nope. Not that straightforward.
As I said previously, these are two separate stream of income and cannot be offset against each other. One is income from other source (interest) another is Short term capital loss
This logic works only if you have other Capital gains to offset against this capital loss.
If you have no other capital gains, you will end up paying tax on full interest income and carry forward capital loss for future years.
Also, math depends on what tax bucket you are in and what capital gains you are offsetting your loss against.
So short answer, it depends on lot of things
As a thumb rule, unless you are specifically trying to net off your capital gains, doing such transaction (buying cumulative bonds very close to maturity) does not make sense.
I am investing in NCDs since 2014 and everytime there is any redemption or interest payment, the whole amount gets credited. But in this financial year, I have noticed that TDS is applicable. Last financial year also 5-6 redemptions happened and I got full amount as mentioned in prospectus.
Just because TDS was not getting deducted does not mean Tax was not to be paid.
Tax treatment on NCD has not changed. Earlier too you were suppose to report Interest and capital gain separately (and pay tax accordingly) - setting them off against each other was never permitted.
Seems like many people like you were ignoring this, so govt had to introduce TDS to ensure everyone comply.
On a lighter not you should be glad that you will be tax compliant after 10 years
@tallerballer
Before TDS deduction was not applicable for listed NCD but now it is applicable so quite possible that the article is not updated now.
Regards,
Aditya
