What are the tax implications on Deep Discount Bonds (DDBs)?
The tax treatment of DDBs will be in accordance with and subject to the conditions in the CBDT clarification F. No. 149/235/2001-TPL dated February 15, 2002 which are given in brief as under: (a) Every bondholder will have to offer to tax the difference between the market valuation made in accordance with the guidelines issued by RBI as on two successive valuation dates (i.e. March 31 each financial year) as interest income (where the bonds are held as investment) or business income (where the bonds are held as trading asset). For this purpose, market values of different instruments declared by the RBI or by the Primary Dealers Association of India jointly with the Fixed Income Money Market and Derivatives Association of India may be referred to. In a case where the bond is acquired during the year, the difference between the market value as on the valuation date and the acquisition cost, will be taxed as income. (b) On transfer of bond before maturity, the difference between the sale
