Bond Washing Transaction

Bond Washing Transaction

A bond-washing transaction is a transaction where securities are sold sometime before the due date of interest and reacquired after the due date is over. This practice is adopted by persons in the higher income group to avoid tax by transferring the securities to their relative’s friends in the lower – Income group just before the due date of payment of interest. In such a case, interest would be taxable in the hands- of – the transferee, who is the legal owner of securities. If this practice is not checked, interest is includible in the total income of the transferee, as interest is chargeable in the hands of the person who is a legal owner of securities on the due date of payment of interest.

Bond Washing referred to a type of transaction of securities where tax avoidance is aimed at. It is sometimes seen that securities are sold cum-dividend with an agreement to re-sell or re-transfer the securities with a view to avoiding tax, the transfer by selling cum-dividend securities might get extra sale price which would be capital profit in this hands, no liability to tax.

Bond Washing Transaction is a transaction where securities are sold sometime before the due date of interest and reacquired after the due date is over. In such a case, interest would be taxable in the hands of the transferee, who is the legal owner of securities.

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