Zero coupon Nabard Bond

[vikas mehta]

1. Whether zero coupon Nabard Bond is a capital index bond under second proviso to section 48 of Income Tax Act, 1961? 2. What is the rate of taxation on zero coupon nabard bond.?

[Ravi Chopra]

NABARD Rural Bonds are being issued by way of private placement as long term investment instrument under Clause (xxii) of Sub-Section (2) of Section 80C of Income Tax Act, 1961 read with Central Board Direct Taxes Notification No. 293/2007/F.No.142/31/2007-TPL dated 31 December 2007. Therefore, a limited exemption under section 80C as an investment has been granted to nabard zero coupon bond. But, there is no exemption under capital gain tax. Hence the same would be subject to capital gain tax.

AI Summary

Section 80C exemption for zero coupon NABARD bond affirmed but capital gains remain taxable under law NABARD Rural Bonds issued by private placement are treated as long term investments eligible for a limited exemption under Section 80C, but they do not receive exemption from capital gains tax and any capital gains arising on zero coupon NABARD bonds remain taxable.