Issuance of zero coupon bond by infrastructure debt fund Union Budget 2021

Clause (48) of section 2 of the Act provides for definition of zero coupon bond, as a bond issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank and in respect of which no payment and benefit is received or receivable before maturity or redemption. These are required to be notified by the Central Government in the Official Gazette.

In order to enable infrastructure debt fund [which are notified by the Central Government in the Official Gazette under clause (47) of section 10 of the Act] to issue zero coupon bond necessary amendments are proposed in clause (48) of section 2 of the Act. Rules 2F and 8B of Income-tax Rules shall be amendment subsequently after the Finance Bill 2021 is enacted.

This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.

[Clause 3]

Consequential amendment has also been proposed in clause (x) of sub-section (3) of section 194A of the Act which will take effect from 1st April, 2021

[Clause 45]

Text of the Relevant Clause of the Finance Bill 2021

Clause 3 of the Bill seeks to amend section 2 of the Income-tax Act relating to definitions.

Clause (11) of the said section, inter alia, defines “block of assets” to mean a group of assets falling within a class of assets comprising tangible assets, being buildings, machinery, plant or furniture and intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

It is proposed to amend the said clause so as to exclude goodwill of a business or profession from the purview of “block of asset”.

It is further proposed to amend clause (14) of the said section which defines the expression “capital asset. It is proposed to insert sub-clause (c) to the said clause so as to include any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof.

It is also proposed to amend clause (19AA) of the said section which defines the term “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of its one or more undertakings to any resulting company on satisfaction of conditions provided by rules in the said clause.

It is proposed to amend the said clause to insert an Explanation so as to clarify that the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and such resulting company–

(i) is a public sector company on the appointed date indicated in such scheme as may be approved by the Central Government or any other body authorised under the provisions of the Companies Act, 2013 or any other law for the time being in force governing such public sector companies in this behalf; and

(ii) fulfills such other conditions as may be notified by the Central Government in the Official Gazette in this behalf.

It is also proposed to insert a new clause (29A) in the said section so as to define the expression “liable to tax”, in relation to a person, means that there is a liability of tax on such person under any law for the time being in force in any country, and shall include a case where subsequent to imposition of tax liability, an exemption has been provided.

It is also proposed to amend clause (42C) of the said section which defines the expression “slump sale” as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

It is proposed to expand the scope of the definition of the term “slump sale” so as to mean the transfer of one or more undertakings, by any means, for lump sum consideration without value being assigned to individual assets and liabilities in such cases.

It is also proposed to insert an Explanation to the said clause so as to provide that the word “transfer” shall have the meaning assigned to it in clause (47) of the said section.

These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.

It is also proposed to amend clause (48) of the said section provides for definition of “zero coupon bond”, as a bond issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank and in respect of which no payment and benefit is received or receivable before maturity or redemption from such infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank and which is notified by the Central Government in the Official Gazette.

It is also proposed to amend the said clause so as to insert infrastructure debt fund in sub-clauses (a) and (b) thereof so as to enable notified infrastructure debt fund also to issue zero coupon bonds.

It is also proposed to insert a new Explanation 2 to define the expression “infrastructure debt fund”.

These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.

Clause 45 of the Bill seeks to amend section 194A of the Income-tax Act relating to interest other than “Interest on securities”.

Sub-section (3) of the said section provides that the provisions of sub- section (1) of that section relating to deduction of tax on income by way of interest other than interest on securities, shall not apply.

It is proposed to include infrastructure debt fund also within the purview of clause (x) of the said sub-section so as to provide that tax shall not be deducted on income in relation to a zero coupon bond issued by infrastructure debt fund.

This amendment will take effect from 1st April, 2021.

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