Financial Daily from THE HINDU group of publications
Thursday, Apr 06, 2006
Financial Daily from THE HINDU group of publications Thursday, Apr 06, 2006 |
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Money & Banking
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Corporate Bonds Industry & Economy - Income Tax CBDT guidelines for zero coupon bonds K.R. Srivats
CBDT norms A zero coupon bond would mean a bond in which no benefit is received or receivable before the maturity or redemption. Application to CBDT should be made at least three months before the date of issue of such bonds. The life of the bond should not be less than 10 years and more than 20 years. Necessary arrangements also have to be made for listing the bonds at a recognised stock exchange.
New Delhi , April 5 The Finance Ministry has come up with the guidelines that would be followed for recognition (for income tax purposes) of the zero coupon bonds issued by an infrastructure capital company or an infrastructure capital fund or a public sector company. These guidelines have come into force from April 1, 2006. The Budget 2005 had brought about a rationalisation in the tax treatment of zero coupon bonds and also introduced a definition of `zero coupon bond'. It had specified that income on transfer of a zero coupon bond, not being stock-in-trade, would be treated as capital gains. Prior to this, there were divergent opinions on whether such incomes should be treated as business income or capital gains. As per the definition introduced in Finance Act 2005, a zero coupon bond would mean a bond in which no benefit is received or receivable before the maturity or redemption and which are issued on or after June 1, 2005, by a infrastructure capital company or infrastructure capital fund or public sector company and specified by the Central Government in the official gazette. The definition has come into effect from April 1,2006. For notification of zero coupon bonds, the Central Board of Direct Taxes has, in its guidelines, stipulated that the application should be made at least three months before the date of issue of such bonds. Also, applications cannot be filed for bonds to be issued beyond two financial years from the year of application. The guidelines also state that bond applications would have to fulfill certain conditions relating to tenure of the bond, credit rating and listing on stock exchanges. It stipulates that the life of the bond should not be less than 10 years and more than 20 years. Moreover, the infrastructure capital company or infrastructure capital fund or public sector company proposing to issue a zero coupon bond should have an investment grade rating from at least two SEBI-registered credit rating agencies. Necessary arrangements also have to be made for listing the zero coupon bonds at a recognised stock exchange in India. An undertaking has to be given along with the application that the money raised would be invested in a manner specified in the guidelines. The Finance Ministry has also specified the manner in which pro-rata amount of discount on a zero coupon bond should be computed. The Budget 2005 had provided that a company or fund or public sector company that issues a zero coupon bond would be allowed a deduction for the discount on pro-rata basis.
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