NaBFID zero-coupon bonds explained: Investment size, returns, maturity, tax rules to know
AI Summary
The Central Board of Direct Taxes has announced a ₹20,000 crore zero-coupon bond issue by NaBFID, aimed at funding India's infrastructure development. These bonds, which mature in 10 years, are sold at a discount and offer returns through capital appreciation, making them a potential long-term investment option for investors. Tax implications differ from traditional bonds, as income is only taxed upon redemption, which may appeal to those seeking fixed-income opportunities.
The Central Board of Direct Taxes (CBDT) has recently notified the ₹20,000 crore zero-coupon bond issue. This is an issue of the National Bank for Financing Infrastructure and Development (NaBFID).
These bonds differ from regular bonds in that they do not provide periodic interest payments. Instead, investors earn returns from the difference between the discounted purchase price and the final maturity value.
The primary objective of the NaBFID is to fund India’s infrastructure development across sectors such as transportation, energy and logistics. They will issue these bonds with a 10-year maturity period.
Investors seeking long-term fixed-income opportunities may find these bonds worth considering.
NaBFID zero-coupon bonds are different from fixed deposits or traditional bonds, as they are issued at a discount to their face value and are redeemed at full value at maturity. The returns are generated from capital appreciation over the holding period.
The total maturity amount of ₹20,000 crore will be achieved from bonds issued at a discounted value of approximately ₹ ₹10,296.12 crore. Based on the estimated issue price, each bond may be available at around ₹48,519.40 and redeemed at ₹1 lakh after 10 years. For complete details, refer to the official notification.
Income generated from listed zero-coupon bonds is treated as capital gains and is taxable when the bond is redeemed, sold or matures. Long-term capital gains are taxed at 12.5%, whereas short-term gains are taxed according to the investor's applicable income tax slab.
Taxation of these bonds is different from fixed deposits, as fixed deposits are taxed annually on accrued interest. Zero-coupon bonds do not require annual taxation of accrued interest. The tax liability, therefore, arises only at the time of redemption or transfer.
In summary, NaBFID zero-coupon bonds offer investors a structured long-term investment option with a predictable maturity value. Evaluate tax considerations, liquidity needs, consult professionals and your financial goals before including such bonds in your portfolio.
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