InvestorQ : What are secured NCDs and do these secured NCDs have any tax advantage over unsecured NCDs?
Moii Chavate made post

What are secured NCDs and do these secured NCDs have any tax advantage over unsecured NCDs?

Answer
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Sam Eswaran answered.
1 year ago


Not exactly! NCDs come in two types; Secured NCDs and Unsecured NCDs. Secured NCDs are backed by the assets of the company and, in the event of default on interest or principal, the NCD holder can move liquidation of the company to recover the dues. In case of unsecured NCDs they are pure debt instruments and hence these unsecured NCDs command higher interest yields compared to secured NCDs. In terms of taxation, there is no difference between secured and unsecured NCDs.

The interest received on the NCD is taxable at the peak rate applicable to the investor. Whether the investor is in the 10% tax bracket, 20% tax bracket or 30% tax bracket will determine how much tax has to be paid on the NCD interest. In case of listed NCDs there is no TDS deducted on interest. There is another benefit in terms of capital gains. Since NCDs are listed on the stock exchange, if the NCDs are sold in the secondary market within 1 year it will be treated as STCG and taxed at the peak rate. But if sold after 1 year, it will be treated as LTCG and taxed at 20% with the additional benefit of indexation. That is the advantage that listed NCDs have over unlisted NCDs.