Rule 23 of the Draft Income-tax Rules, 2026 lays down the method for computing the pro rata amount of discount on a zero coupon bond for the purposes of section 32(d) of the Act. The rule requires converting the total life of the bond into calendar months. If the month of issue, maturity, or redemption contains a partial month, it is counted as a full month if the period is fifteen days or more, and ignored if less than fifteen days. The total discount on the bond is then divided by the total number of calendar months to determine the monthly discount amount. For a particular tax year, the monthly discount is multiplied by the number of calendar months falling within that tax year to arrive at the pro rata discount taxable or deductible for that year. This structured monthly approach ensures systematic and proportionate recognition of discount income over the bond’s tenure.
Extract of Rule No. 23 of Draft Income-tax Rules, 2026
Rule 23
Computation of pro rata amount of discount on a zero coupon bond for the purpose of section 32(d) of the Act.
(1). For the purposes of section 32(d) of the Act, the pro rata amount of discount on a zero coupon bond shall be computed in the following manner, namely:—
(a) the period of life of the bond shall be converted into number of calendar months and, for this purpose, where the calendar month in which the bond is issued or the bond matures or is redeemed contains a part of a calendar month then, —
(i) if such part is fifteen days or more than fifteen days, it shall be increased to one calendar month and
(ii) if such part is less than fifteen days it shall be ignored;
(b) the amount of discount shall be divided by the number of calendar months determined in accordance with clause (a);
(c) where one or more than one calendar month out of calendar months determined in accordance with clause (a) is or are included in a tax year, the amount determined in accordance with clause (b) shall be multiplied by the number of calendar months so included and the amount so arrived at shall be taken to be the pro rata amount of discount for that tax year.
