Home Income Tax What is Bond Washing Transactions? Details guide-step by step

What is Bond Washing Transactions? Details guide-step by step


What do you know about Bond Washing Transactions? Details guide (step by step)

Here, we talk about Bond Washing Transactions and to control Black Money, Section 94A was introduced to reduced tax evasion. Details Guide on Wash Sale, Savings Bonds, Sales Stock and Bond Washing etc.

In 21st Century, everyone wants to earn a lots of money. People are earning money through various mode. Through new start-up, online marketing, trading in securities, website building and many more business idea. And earning a good money. So, taxpayer is finding out different way to reduce tax.

Thus, With the rise in flow of Black Money, Government has to control the generation and circulation of black money. Taxpayer not comply with the Income Tax Rule. For the reason that, the Government has created the provision of Bond Washing  Transaction” in section 94(1) of Income Tax Act,1961.

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What is Bond Washing Transactions?

A Bond-Washing transaction is a transaction where securities are sold some time before the due date of interest and reacquired after the due date is over.

Normally, this practice may be adopted by an assessee in the higher tax slab. Assessee transferring the securities to their relatives/friends in the lower tax slab just before the due date of payment of interest to avoid tax.

Provision of Bond Washing (section 94(1), section 94(2))

In order to discourage Bond Washing, section 94(1) provides that where the owner of a security transfers the security just before the due date of interest and buys back the same immediately after the due date and interest is received by the transferee. such interest income will be deemed to be the income of the transferor and would be taxable in his hands.

In order to prevent the practice of sale of securities-cum-interest, section 94(2) provides that if an assessee who has beneficial interest in securities sells such securities in such a manner that either no income is received or income received is less than the sum he would have received. If such interest had accrued from day to day, then income from such securities for the whole year would be deemed to be the income of the assessee.

However, section 94(3) lays down that the provision of sections 94(1) or 94(2) are, not applicable, if the owner proves that

(a) there has been no avoidance of income-tax, or

(b) the avoidance of income-tax was exceptional and not systematic and that there was no avoidance of income tax by such a transaction in any of the three preceding years.

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