The Central Board of Direct Taxes (CBDT) has allowed National Housing Bank (NHB) to issue before end-March 2009, 30-lakh zero coupon bonds (ZCBs) with specific tax benefits for both the issuer and investors.

Each bond would have a 10-year life period and a maturity or redemption value of Rs 10,000.

The discount would be decided by NHB at the time of issuing the bonds, official sources said. A zero coupon bond does not make interim interest payments and is sold with a large discount.

In Budget 2005-06, the Centre had rationalised tax treatment of ZCBs.

It was specified that any income on transfer of such bonds (not being stock in trade) would be treated as capital gains with effect from April 1, 2006. Consequently, long-term capital gains on such ZCBs are subject to tax at 10 per cent if the taxpayer does not claim the benefit of indexation.

It has also been specified that no tax would be deducted at source on income payable on such bonds.

Sources said NHB can now avail itself of deduction for the discount (difference between the amount received by the issuer and the amount payable at the time of maturity and redemption) on a pro rata basis related to the life period of the bond.