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TAXABILITY OF DEEP DISCOUNT BONDS

Income Tax - Tax Liability in special Circumstances / Specific Cases - 16 - The Central Board of Direct Taxes (CBDT) had issued letter dated March 12, 1996, which clarified the taxation of Deep Discount Bonds (DDB), being financial instruments offered at a huge discount to face value, as under: When the bond is held till maturity: The difference between the bid/subscription price and the redemption price or face value of DDB will be taxed as interest income in the year of maturity and be subject .....

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which no interest is paid at intervals, but on maturity lump sum amount is received. TAX TREATMENT OF DDBs In the year of purchase of bond Market value of bond as on 31st March of current financial year. Purchase price = Interest Income (Taxable as Income from other source/ PGBP) Every year when bonds are held Market value of bond as on 31st March of current financial year. Market value of bond as on 31st March of last financial year = Interest Income (Taxable as income from other source/ PGBP) .....

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