ZERO COUPON BONDS

Zero Coupon Bonds (ZCBs) are normal taxable bonds but it is issued on a discount price and redeemed at par, thus the difference between the issue price and redemption price acts as the interest income for the Investor and is payable only on the maturity.

The main benefits are that since the investor doesn't get regular income, hence he is compensated by a slightly higher yield and it is not subject to any TDS. However, on sale of these securities prior to or on maturity the Capital Gain Tax is applicable and payable.

Besides NABARD, some more Govt. Organizations have got the approval from the Finance Ministry to issue ZCBs, like NHB, PFC, REC, HUDCO, SIDBI, IDFC, etc. Approvals need to be revalidated every year, if not utilized during the notification year.

DEEP DISCOUNT BONDS
Deep Discount Bonds (DDBs) are normal taxable bonds but it is issued on a discount price & redeemed at par. Here-in the income in the hands of investor will be treated as interest income on basis of market valuation of bond as on 31st March of each FY.

Currently, no DDBs are available in the primary market. However, it is available in ample quantity in the secondary markets. Some of the past issuances which are available in the markets are : with state government guarantee PIDB, MSRDC and on Stand alone basis of corporate like HDFC, PFC, ICICI, Trent Ltd., Indian Hotels, etc