Fixed Deposit, Bonds & Debenture

Fixed Deposit - In deposit terminology, the term Fixed Deposit refers to a savings account or certificate of deposit that pays a fixed rate of interest.

Bonds - A Bond is simply an 'IOU' in which an investor agrees to loan money to a company or government in exchange for a predetermined interest rate.

Infrastructure Bonds - Infrastructure bonds are those bonds the proceeds of which are invested by the company in the infrastructure facilities of the country. Such bond carries a fixed rate of interest to be paid at the time of maturity. Today these bonds have become a tool of tax planning. If a person is investing in infrastructure bonds, he / she will be eligible for deduction up to maximum of Rs.20, 000/- every financial year.

Debenture - A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.

Capital gain Bound - Any gain arising from the transfer of a capital asset during a previous year is rechargeable to tax under the head “Capital Gains� in the immediately following assessment year, if it is not eligible for exemption under sections 54, 54B, 54D, 54EC, 54ED, 54F and 54G. In other words capital gains tax liability arises only when the following conditions are satisfied:

  • Condition 1 There should be a capital asset
  • Condition 2 The capital asset is transferred by the assessee.
  • Condition 3 Such transfer takes place during the previous year
  • Condition 4 Any profit again arises as a result of transfer
  • Condition 5 Such profit or gain is not exempted from tax under

Sections 54A, 54B, 54D, 54EC, 54ED, 54F and 54G.
In the foresaid conditions are satisfied, then capital gain is taxable in the assessment year relevant to the previous year in which the capital asset is transferred. However the following points should be considered-In some cases capital gain taxable in a year other than the year in which the capital asset is transferred. In some cases capital gain arises even if there is no transfer of capital asset.

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