Rule 23 — Computation of pro rata amount of discount on a zero coupon bond for purpose of section 32(d). Made under s.32 of the Income-tax Act, 2025.
Rule 23 gives effect to Section 32 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule gives the arithmetic for the pro rata amount of discount on a zero coupon bond for the purposes of section 32(d), in three steps under sub-rule (1).
Clause (a) converts the period of life of the bond into a number of calendar months. Where the calendar month in which the bond is issued, or in which it matures or is redeemed, contains only a part of a calendar month, that part is rounded: under sub-clause (i) a part of fifteen days or more is increased to one calendar month, and under sub-clause (ii) a part of less than fifteen days is ignored. Clause (b) divides the amount of discount by the number of calendar months so determined, giving a monthly figure. Clause (c) then multiplies that monthly figure by the number of those calendar months included in a tax year, and the amount so arrived at is the pro rata amount of discount for that tax year.
A zero coupon bond pays nothing until maturity, so the whole return is a discount realised at the end. Section 32(d) spreads that discount over the life of the bond rather than taxing it in one year, but leaves unstated how the spreading is done and how the part-months at the two ends of the bond's life are handled. The rule settles both: a straight-line division over whole calendar months, with a fifteen-day rounding rule at each end.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Part of a calendar month rounded up to a full calendar month | Fifteen days or more | Where the calendar month in which the bond is issued, or matures or is redeemed, contains a part of a calendar month | Sub-rule (1)(a)(i) |
| Part of a calendar month ignored | Less than fifteen days | Where the calendar month in which the bond is issued, or matures or is redeemed, contains a part of a calendar month | Sub-rule (1)(a)(ii) |
The unit of account is the calendar month, not the day, and the rounding in clause (a) is applied at both ends of the bond's life — the month of issue and the month of maturity or redemption are each tested for whether the part-month runs to fifteen days. Because clause (b) divides the discount by the rounded month count, the rounding changes the monthly figure for every year of the bond, not only the first and last. Clause (c) then allocates by counting how many of those calendar months fall inside the tax year, so the amounts for the opening and closing tax years are usually smaller than for a full year in between. The rule computes an amount; whether and how that amount is deductible or chargeable is a matter for section 32(d), which the rule cannot enlarge.
A bond is issued on 20 June and redeemed on 10 July four years later, at a discount of Rs 4,80,000. The part of June is eleven days, less than fifteen, so it is ignored; the part of July is ten days, also less than fifteen, so it too is ignored. The life is forty-eight calendar months, giving Rs 10,000 a month. For a tax year containing twelve of those months the pro rata amount is Rs 1,20,000; for the first tax year, containing the nine calendar months from July to March, it is Rs 90,000.
You meet it in the computation accompanying a return where a zero coupon bond is on the books, and in any query on how the discount was spread between tax years.
the period of life of the bond shall be converted into number of calendar months
if such part is fifteen days or more than fifteen days, it shall be increased to one calendar month
the amount of discount shall be divided by the number of calendar months determined in accordance with clause (a)