Deep Discount Bond

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devang

Article

66 Points Joined March 2009

hello,

At Maturity whats the Tax Laibility of Deep Discount Bond..... Can Any one Tell?????

Replies (5)

Sunali

Learner

1317 Points Joined August 2008

219. Clarification regarding taxability of income relating to deep discount bonds

It is clarified that the difference between the issue price and the redemption price of Deep Discount Bonds will be treated as interest income assessable under the Income-tax Act. On transfer of Bonds before maturity, the difference between the sale consideration and issue price will be treated as Capital Gains/Loss if the assessee purchased them by way of investment. However, in the case of an assessee who deals in purchase and sale of Bonds, Securities, etc., the profit or loss shall be treated as trading profit or loss.

Letter : F. No. 225/45/96-IT(A-II), dated 12-3-1996.

Balaji

Knowledge Seeker

317 Points Joined March 2009

Sunali is correct.

devang

Article

66 Points Joined March 2009

i agree with your comments but if issuer treated as interest income before or after maturity what soever how it will be treated as capital gain???

Sunali

Learner

1317 Points Joined August 2008

Hi Devang..the matter as explained by IT Department is that if the bonds are sold before maturity, the difference between the sale vale and purcahse price will be the capital gain, however if the holder get the same redeemed from the company, no capital gain will arise and the interest i.e. the difference between purchase price and redemption price will be taxable under the head income from other sources.

I hope its clear now..