Zero Coupon Bonds by IRFC What CBDT Just Notified
The Central Board of Direct Taxes (CBDT) has officially notified the issuance of Zero Coupon Bonds by Indian Railway Finance Corporation Ltd (IRFC)—a major move under Section 10(15)(iv)(h) of the Income Tax Act, 1961.
This notification, issued via Notification No. 43/2025 dated 14.05.2025, opens up new investment avenues with tax benefits and sovereign credibility. Here’s everything you need to know.
What Are Zero Coupon Bonds?
- These are bonds issued at a discount and redeemed at face value
- No interest paid annually—returns come as the difference between issue and redemption price
- Ideal for long-term, low-risk investors
- Commonly used by government-backed institutions
CBDT Notification at a Glance
| Particulars | Details |
|---|---|
| Issuer | Indian Railway Finance Corporation Ltd |
| Instrument Type | Zero Coupon Bonds |
| Tax Exemption Section | Section 10(15)(iv)(h) of Income Tax Act |
| Notification Number | 43/2025 |
| Date of Notification | 14 May 2025 |
| Gazette Publication | Yes |
Official Notification: incometaxindia.gov.in
Tax Benefits on IRFC Zero Coupon Bonds
Under Section 10(15)(iv)(h):
- No tax on interest income, as there’s no periodic interest
- Maturity proceeds exempt from income tax
- Ideal for HUFs, trusts, and long-term investors
Note: Exemption applies only if the bond is not transferred or traded before maturity.
Why IRFC?
- IRFC is a government-owned NBFC under Ministry of Railways
- Plays a critical role in funding Indian Railways infrastructure
- Backed by sovereign guarantee—low credit risk
Who Should Consider Investing?
- Long-term investors planning for retirement corpus
- HUFs and Trusts looking for tax-free investment vehicles
- CAs advising tax-efficient fixed income options
- Portfolio managers managing debt-heavy portfolios
Expert Insight: Keep This in Mind
“Zero Coupon Bonds by government-backed entities like IRFC are a smart way to lock in tax-free returns, provided you don’t need interim liquidity.”
– CA Anil Mehta, Fixed Income Analyst
Related Legal Provision
Section 10(15)(iv)(h) of the Income Tax Act, 1961:
Exempts income from Zero Coupon Bonds issued by specified infrastructure companies notified by the Central Government.
FAQs on IRFC Zero Coupon Bonds
Q1: Is TDS applicable on IRFC Zero Coupon Bonds?
No. Since interest is exempt under Section 10(15)(iv)(h), no TDS is deducted.
Q2: Can I trade this bond in the secondary market?
No. Exemption is lost if traded, unless held until maturity.
Q3: Is IRFC a safe issuer?
Yes. It is a Ministry of Railways undertaking, backed by the Government of India.
Final Word: Tax-Free Returns Backed by Government
The IRFC Zero Coupon Bond issuance, now CBDT-notified, presents a rare opportunity for investors seeking tax-free, sovereign-backed returns.
Efiletax will help you decode such instruments and optimize your tax strategy. Stay updated and compliant—consult us today for personalized advice.
Summary
CBDT has notified Zero Coupon Bonds issued by IRFC under Section 10(15)(iv)(h) of the Income Tax Act. These bonds offer tax-free maturity returns, no annual interest, and government backing—ideal for long-term, low-risk investors like HUFs and trusts. Learn how to invest smart.