CBDT Allows HUDCO To Issue Ten Year Zero Coupon Bonds: Know Tax Implications

The Central Board of Direct Taxes has notified the Ten Year Zero Coupon Bond of Housing and Urban Development Corporation Ltd. (HUDCO) for the purposes of clause (48) of section 2 of the Income Tax Act.

Clause (48) of section 2 of the Income Tax Act defines “zero coupon bond” means a bond issued by any infrastructure capital company or infrastructure capital fund or [infrastructure debt fund or] public sector company or scheduled bank on or after the 1st day of June, 2005.

The Board has notified that the bond namely Ten Year Zero Coupon Bond of Housing and Urban Development Corporation Ltd. which has  the life of Ten years one month, which is to be issued on or before the 31st day of the bond March 2027. The amount to be paid on maturity or redemption of the bond is Rs. 5,000 crores. The discount receive is Rs. 2,351.49 crores  and Five lakhs bonds has been issued.

Housing and Urban Development Corporation Ltd. shall utilise the proceeds from such bonds only for those infrastructure projects which can service the debt out of the project revenues without being dependent on the State Governments for the service of debts.

‘Infrastructure’ includes all infrastructure sub-sectors as defined vide notification no. 262 of the Department of Economic Affairs, Ministry of Finance issued by F.No.13/1/2017-INF dated October 11, 2022 (Updated Harmonised Master List of Infrastructure sub-sectors) and shall include any amendments or additions made thereof;

Infrastructure project’ means any project in Infrastructure sector.

Tax Implications on Ten Year Zero Coupon Bond of HUDCO

Zero coupon bonds are taxed differently from traditional bonds due to their lack of periodic interest payments. Investors are required to report and pay taxes annually on imputed interest, even though they don’t receive cash until the bond matures.

The investors of notified zero coupon bonds are liable to pay only capital gains tax on maturity. Capital appreciation, in such cases, is the difference between the maturity price and the purchase price of the bond. In the case of non-notified zero coupon bonds, the difference between maturity and purchase price is treated as interest and taxed accordingly. 

Notification Details

Notification No.  34 /2025

Date: 17th April, 2025

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