Dated Government Security

A Government Security (G-Sec) with a maturity of a year or more is called a dated security, or dated G-Sec — the long end of the Government's borrowing, as opposed to a short-dated treasury bill.

The Central Government issues both treasury bills and dated securities. State Governments issue only the long-dated kind, which carry their own name: State Development Loans (SDLs). Both pay a fixed or floating coupon, serviced half-yearly, with the principal repaid on maturity — and both are, in the workbook's words, "risk-free gilt-edged securities," carrying the Sovereign's commitment.

Tenor. Dated G-Secs generally run from 5 years to 40 years.

Taxation. The workbook is explicit: taxability of dated G-Secs and SDLs is the same as for listed bonds — 12 months to qualify as long-term, 12.5% on long-term gains (no indexation), short-term gains at applicable rates.

TDS. No tax is deducted under Section 193 on interest paid to a resident on Central or State Government securities — except for the 8% Savings (Taxable) Bonds, 2003 and the 7.75% Savings (Taxable) Bonds, 2018, where TDS applies only once the interest paid in the year exceeds Rs 10,000.

Held in demat. Investors can hold G-Secs with NSDL or CDSL, which lets them trade on the stock exchanges and gives dated securities the liquidity to be sold in the secondary market for cash needs — unlike a bank fixed deposit locked to maturity.

The workbook's Example 9. XYZ Bank invested Rs 50 lakh in unlisted Dated G-Secs on 01-01-2015: face value Rs 100, issue price Rs 125, 40,000 bonds, coupon 7.50% p.a., maturing 31-12-2027. It sold the entire holding on 01-01-2025 at Rs 150 each.

Interest for FY 2024-25: 40,000 × Rs 100 × 7.50% × 9/12 (April to December 2024) = Rs 2,25,000.

Capital gain:

Period of holding: 01-01-2015 to 31-12-2024 = 10 years — but UNLISTED
Nature of gain: Always SHORT-TERM, irrespective of holding period
Full value of consideration (40,000 × Rs 150)  = Rs 60,00,000
Less: Cost of acquisition (40,000 × Rs 125)      = Rs 50,00,000
Short-term capital gain                          = Rs 10,00,000

Because these particular G-Secs were unlisted, even a ten-year holding gives a short-term gain — the same rule that applies to any unlisted bond or debenture, regardless of how the underlying is described.

Chapter 10 (Taxation of Debt Products), section 10.2.2, covers Government Securities in full, including dated G-Secs and SDLs, with the TDS carve-out and Example 9 as the worked computation. Expect a question distinguishing listed from unlisted dated G-Secs for holding-period purposes, and the TDS carve-out for the two named savings bonds.

• Unlisted dated G-Secs are always short-term, however long they were held — Example 9's ten-year holding is still a short-term gain because the bonds were unlisted.
• Listed dated G-Secs follow the ordinary 12-month rule and the 12.5% long-term rate, same as any listed bond.
• No TDS on ordinary Government security interest — the exception is narrow: only the 8% (2003) and 7.75% (2018) Savings Bonds, and only once annual interest exceeds Rs 10,000.
• A treasury bill is a short-term instrument (under 1 year); a dated security is long-term (1 year or more). Do not treat the two as interchangeable.