Explain Bond washing Transactions? How is tax avoided through such transactions?

Bond washing transactions, also known as bond selling and repurchasing, are a practice used to generate artificial losses for tax purposes. These transactions involve selling a bond at a loss and then repurchasing an identical or substantially similar bond shortly after, with the aim of realizing the loss for tax deduction purposes while maintaining the original investment position.

The concept behind bond washing transactions is to take advantage of the tax treatment of capital losses. In many jurisdictions, capital losses can be used to offset capital gains, and in some cases, even ordinary income, thereby reducing the overall tax liability. By realizing losses on bond transactions, investors can potentially reduce their taxable income and lower their tax burden.

Here's how bond washing transactions typically work:

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