Tax benefits on interest
No. Interest paid on a loan against securities does not qualify for tax benefits.
Effect on holding period and capital gains
Pledging shares does not change their tax treatment. Your shares continue to be considered for long-term or short-term capital gains based on their original purchase date, and there is no impact on capital gains tax as long as they remain pledged.
Tax implications arise only when:
- You unpledge and sell the shares, or
- The shares are sold, for example during confiscation to recover dues
In those cases, capital gains are calculated based on the holding period as per applicable tax rules.