The government has approved a proposal by the National Bank for Agriculture and Rural Development (Nabard) to raise up to ₹19,500 crore through zero-coupon bonds, also known as deep-discount bonds for taxation purposes.The bonds, which can be issued on or before March 31, 2027 and the bonds could mature in 10 years, 11 months and 13 days, the Central Board of Direct Taxes said in a gazette notification.
According to the notification, “the discount on the bonds will be ₹10,349.6 crore, and the amount to be paid on maturity or redemption would be ₹19,500 crore”.Zero-coupon bonds work by being issued at a discount to their face value, and no periodic interest (coupons) is paid. Investors earn their return by purchasing the bond at a lower price and receiving the full face value at maturity.
The difference between the purchase price and the face value represents the investor’s profit and would be taxable as income from capital gains, only on transfer or redemption, and not annually.
Nabard, the apex financial institution for agriculture and rural development, plays a central role in implementing the Centre’s policies on credit planning and disbursement to the rural economy.
It refinances the entire cooperative credit system and banks through short and long-term loans to help facilitate the flow of agricultural credit.
Nabard also plays a developmental role in strengthening the cooperative structure to evolve a sustainable rural financial system to enhance ground-level credit flow to farmers and others in rural areas. Over the past few years, the role and scope of NABARD have been significantly enlarged by the government.