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of <h1>New Tax Rules for Deep Discount Bonds: Annual Taxation Based on Market Value, Capital Gains on Pre-Maturity Sales.</h1> The circular from February 2002 addresses the tax treatment of Deep Discount Bonds and STRIPS. It clarifies that the income from these bonds, previously taxed as a lump sum upon redemption, will now be taxed annually based on market valuation, aligning with international practices. This change aims to avoid sudden tax liabilities and correct previous anomalies. For bonds transferred before maturity, the difference between sale and acquisition costs will be taxed as capital gains. The circular allows small non-corporate investors to continue using the previous tax method for bonds up to one lakh rupees. Tax deduction at source applies at maturity, with certain exemptions.
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