Infrastructure debt funds allowed to issue zero ­coupon bonds

The Income Tax department has amended rules to enable infrastructure debt fund and NBFCs to issue zero ­coupon bonds.

• A new notification has added the word ‘infrastructure debt fund’ along with infrastructure company and public sector company.

• Accordingly, the infrastructure debt fund can issue zero ­coupon bonds (ZCBs) apart from rupee­ denominated bonds or foreign currency bonds.

What are zero coupon bonds?

• Zero coupon bonds (ZCB) are issued at a discount and redeemed at par. No interest payments are made on such bonds at periodic intervals before maturity.

• These bonds are considered ideal for people who require funds at a specific period of time in the future, like children’s education or retirement or a planned tour ZCB can be issued in accordance with rule 8 B of the Income Tax Rules.

• Among other things, the rule prescribes the period of the bond as not less than 10 years and not more than 20 years.

• The fund should have an investment grade rating from at least two credit rating agencies. The bonds will be listed on stock exchanges.

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