Microlesson · 5-min read

Section 36(1)(iiia) - Discount on Zero Coupon Bonds

# Section 36(1)(iiia) - Discount on Zero Coupon Bonds (ZCBs)

## Provision

Deduction is allowed for the discount on Zero Coupon Bonds (ZCBs) on a pro-rata basis.
The discount is to be spread over the period of life of the bond in the prescribed manner.

## Concept

A ZCB is issued at a discount and redeemed at face value; it carries no periodic interest.
Difference between issue price and redemption price represents 'interest cost' to the issuer.
This cost is amortised over the life of the bond.

Worked example

### Example 1

Example: Co. issues a ZCB of face value ₹100 at ₹60 with maturity of 5 years.

Claiming the full discount in the year of issue or in the year of redemption instead of pro-rata.
Computing pro-rata on calendar-year basis when the law requires the prescribed manner (months of life).

Reference: Section 36(1)(iiia) — Income Tax Act, 1961

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