CBDT amends Rules to allow Infrastructure Debt Fund to issue ‘Zero Coupon Bonds’

Notification 28/2022, dated 06-04-2022

Section 10 of the Income-tax provides an exclusive list of income that does not form part of the assessee’s total income. Such income is not included altogether in the total income forming part of the five heads of income.

Clause (47) of Section 10 provides that any income of an infrastructure debt fund, set up in accordance with the guidelines prescribed by the Central Government, is exempt from tax. The Infrastructure Debt Fund shall conform to and comply with the provisions of the Income-tax Act and Rule 2F of the Income-tax Rules, 1962.

Sub-rule (3) of Rule 2F allows the Infrastructure Debt Fund to issue rupee-denominated bonds or foreign currency bonds. The Central Board of Direct Taxes (CBDT) has substituted said sub-rule to allow Infrastructure Debt Fund to issue zero coupon bonds in accordance with Rule 8B.

The Board has also amended Rule 8B, which provides guidelines for notification of zero-coupon bonds. The followings are the 5 key changes introduced by the CBDT under Rule 8B:

1) Rule 8B, before the amendment, allows only an Infrastructure Capital Company or Infrastructure Capital Fund or a Public Sector Ccompany to make an application for the issuance of zero coupon bond. Now, an Infrastructure Debt Fund has been added to such a list.
2) Application made for issuance of zero coupon bond shall be disposed of within 6 months from the date of receipt of such application. Earlier, there was no such time limit.
3) Reference of ‘Companies Act, 1956’ used in the Rule has been substituted with ‘Companies Act, 2013’.
4) The infrastructure debt fund shall submit an undertaking that a sinking fund shall be maintained for the interest accrue on all the zero coupon bonds subscribed. Such interest shall be invested in Government security as defined under section 2(f) of the Government Securities Act, 2006.
5) Companies issuing zero coupon bond are required to submit a certificate from a Chartered Accountant specifying the amount invested in each year. The Board has notified that such certificate shall be submitted in Form No. 5BA. No such form was prescribed under Rule 8B earlier.

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