If the bond matures, bonds the difference between the redemption price and the issue price of Deep Discount Bonds will be charged as interest income under the Income Tax Act, 1961.

On transfer of deep discount bonds before maturity, the difference between the redemption or sale price and cost of acquisition shall be charged to the capital gain if the assessee purchased them by way of investment. However, in the case of an assessee who deals in purchase and sale of Bonds, Securities, etc., the profit or loss shall be treated as trading profit or loss.

As per section 48 of the Income Tax Act, 1961 no benefit of indexation is allowed in case of bonds and debenture.

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