How structured products are taxed in India

For years, a large part of the appeal of market-linked debentures was tax. A listed MLD held for more than a year was treated as a long-term capital asset, and gains were taxed at a concessional rate. That is what made a moderate headline return look compelling on a post-tax basis.

That ended with the Finance Act 2023, which introduced Section 50AA of the Income-tax Act, 1961 with effect from 1 April 2023. Gains on the transfer, redemption or maturity of a market-linked debenture became deemed short-term capital gains, taxed at the investor's applicable slab rate, regardless of holding period. The Finance (No. 2) Act 2024 extended similar treatment to unlisted bonds and debentures transferred, redeemed or maturing on or after 23 July 2024.

The Income-tax Act, 2025 replaced the 1961 Act with effect from 1 April 2026, and carried this treatment forward unchanged as Section 76. So the rule is the same, but the provision to quote today is Section 76 of the Income-tax Act, 2025, not Section 50AA. Securities transaction tax paid is expressly not deductible in computing the gain.

There is no long-term treatment to wait for and no indexation benefit. A note held for three and a half years and a note held for three months are taxed the same way.

So the headline return and the return you keep are two different numbers, and the gap is largest for exactly the investors these products are usually shown to. As illustrative arithmetic only: a 12 percent pre-tax return taxed at a 30 percent slab is roughly 8.4 percent post-tax, before surcharge and cess, which push it lower again.

This is not an argument against structured products. It is an argument for comparing them to alternatives on a post-tax basis rather than a headline basis, and for asking what the structure does for you beyond the number.

Tax treatment depends on the specific instrument, how it is held, and your own position, and it can change with any Finance Act. The summary above reflects the position as at July 2026 and describes the general treatment of market-linked debentures. It is not tax advice.

Finwisor is an AMFI-registered mutual fund distributor, not a tax adviser. Confirm the current treatment and your own liability with a qualified chartered accountant or tax professional before you invest, and read the tax section of the issuer's offer document.