Discount on Zero Coupon Bond - Section 36(1)(iiia) - Income Tax - Ready Reckoner - Income Tax

Discount on Zero Coupon Bond - Section 36(1)(iiia) Pro-rata amount of discount on a zero coupon bond issued by infrastructure capital company or a public sector company shall be amortized over the life of the zero coupon bond. Zero Coupon Bonds :- According to section 2(48) , zero coupon bond is a notified bond issued by any infrastructure capital company (or infrastructure capital fund or public sector company or scheduled bank) on or after June 1, 2005. In respect of such bond, no payment/benefit is received (or receivable) by a bondholder before maturity/redemption. Meaning of Discount :- Discount means the difference between the amount received or receivable at the time of issuing the bond and the amount payable by on maturity or redemption of such bond. Meaning of Period of Life of the Bond :- Period of life of the bond means the period commencing from the date of issue of the bond and ending on the date of the maturity or redemption of such bond. Guidelines for Notification Application should be made in Form 5B. The application should be made at least 3 months before the date of issue of Zero coupon bonds. The application should be accompanied by a copy of certificate of Incorporation/ a copy of registered trust deed/ a copy of relevant act under which the applicant has been incorporated. The life of bound should not be less 10 years and more than 20 years. The applicant should have an investment grade rating from at least 2 registered credit rating agencies. The applicant should have made necessary arrangements for listing the Zero coupon bonds. A certificate from a chartered accountant shall be submitted within 2 month from the end of each financial year specifying the amount invested in each financial year. Tax Treatment in the hands of company issuing such bonds Discount is deductible pro rata basis as stated above. tax will not be deducted at source u/s 194A by the payer company Tax treatment in the hands of Investor Maturity/redemption of Zero coupon bonds will amount to transfer u/s 2(47)(iva). if period of holding is more than 12 months, such bounds would be long-term capital under section 2(42A). Long term Capital gains would be taxable at the rate of 10% [+SC+HEC] without indexation under section 112.