19 March 2009
there is no specific provision regarding taxability of deep discount bonds before maturity. As it is the premature redemption has nothing to do with taxability. If bonds purchased are in the nature of 'taxfree', then the amount of interest would be taxfree and vice versa. in your case Rs.45000 would be taxable
19 March 2009
Interest income of deep discount bond should be offered for taxation in accordance with CBDT Circular 2/2002 dt 15/2/2002 and the TDS provisions thereon should be according to CBDT Circular 4/2004 dt 13/5/2004.
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