SEBI Permits Zero-Coupon Debt Securities at ₹10,000 Denomination

December 18, 2025, the regulator dropped a directive that actually matters to your personal portfolio. Under Circular No. HO/17/11/24(1)2025-DDHS-POD1/I/491/2025, SEBI has officially allowed companies to issue Zero-Coupon Debt Securities (Zero-Coupon Bonds or ZCBs) at a face value of just ₹10,000.

If you have been following the bond market for as long as I have, you know why this is a big deal. For years, the corporate bond market in India has been a gated community. If you wanted to buy a “Deep Discount Bond,” the ticket size was often ₹10 Lakhs or ₹1 Crore. It was a playground for Mutual Funds, Insurance companies, and the ultra-wealthy.

The average retail investor was left with Fixed Deposits (taxed at 30%+) or Debt Mutual Funds (which lost their indexation benefit recently).

Now, SEBI has kicked the doors open. But before you rush to withdraw your FD money and buy these bonds, you need to sit down and read the fine print. As a tax professional, I see a massive opportunity here, but also a hidden tax trap that almost no financial influencer is talking about.

This is not a marketing brochure. This is your survival guide to the new ₹10,000 Zero-Coupon Bond market.

Understanding Zero-Coupon Debt Securities.

When I talk about zero-coupon debt securities with clients and readers, I always start with their basic structure: they are issued at a discount to face value and redeemed at par on maturity, with no interim interest (coupon) payments at all. Your return comes entirely from the difference between what you pay today and what you receive at maturity, which effectively means the interest is being compounded within the bond rather than paid out periodically.

For example, if a bond has a face value of ₹10,000 and is issued at ₹6,800 with a 5-year maturity, you receive the full ₹10,000 at the end of five years, and the ₹3,200 difference represents your overall gain before tax. In India, zero-coupon bonds are often used by long-term investors who want a predictable lump sum at a future date without worrying about reinvestment of intermediate coupons, especially when interest rates are volatile.

Tax treatment in India depends on whether the bond is a notified “specified zero-coupon bond” or a regular corporate zero-coupon bond under the Income-tax Act. “Specified zero coupon bond” is defined in section 2(48) of the Income-tax Act, 1961, and such bonds are notified by the Central Government. For these notified specified zero-coupon bonds, the appreciation is generally taxed as long-term capital gains at a special rate when the bond is transferred or redeemed, provided prescribed conditions are met, and these bonds are recognised in the CBDT utility for specified zero-coupon bonds.

For other zero-coupon bonds, the annual accretion may be treated as interest or capital gains depending on the structure and holding pattern, and in practice many investors and tax professionals treat the gain on sale or redemption of non-notified zero-coupon bonds held as investments as capital gains, with the holding period determining whether it is short-term or long-term.

SEBI’s Key Changes: Old vs New Rules.

Under SEBI’s earlier July 2024 circular on reduction in denomination of debt securities and non-convertible redeemable preference shares (SEBI/HO/DDHS/P/CIR/2024/90 dated 31.07.2024), issuers could reduce face value to ₹10,000 only for interest-bearing or dividend-bearing instruments with fixed maturity and no structured obligations. That condition effectively excluded zero-coupon bonds, even though they are typically issued at a discount and redeemed at face value without any coupon.

The Old Regime.

Until last week, if a company wanted to issue a bond with a face value of ₹10,000 (low ticket size), SEBI had a strict condition: It had to pay regular interest.

The regulator was protecting you. They assumed that small investors need regular cash flow. If a company wanted to issue a Zero-Coupon bond (where you pay ₹6,000 today and get ₹10,000 after 5 years), they had to keep the face value high (typically ₹1 Lakh minimum) to ensure only “sophisticated” investors bought it.

The December 18, 2025 circular HO/17/11/24(1)2025-DDHS-POD1/I/491/2025 modifies Clause 1.3 of Chapter V of the NCS Master Circular to expand eligibility to zero-coupon debt securities, subject to the same safeguards of fixed maturity and no structured obligations. This means issuers can now structure privately placed listed NCS either as regular coupon-paying instruments or as zero-coupon instruments, both at the reduced minimum denomination of ₹10,000, provided they remain plain-vanilla.

As per my reading of the modified text in Clause 1.3 of Chapter V of the NCS Master Circular, SEBI has simply added a clear reference that such securities may also be “a zero-coupon debt security with a fixed maturity, without any structured obligations,” thereby addressing the earlier gap without disturbing the broader NCS framework.

Real-World Examples from India.

If you have followed Indian fixed-income markets over the years, you would have seen several zero-coupon or deep-discount bonds issued by public sector entities and corporates. NTPC and other PSUs have previously raised money through deep-discount instruments, though often at higher denominations, targeting institutional and HNI segments rather than smaller retail tickets. Similar structures have been seen in infrastructure and housing finance entities that prefer back-ended cash outflows matching project revenues.

Bond market platforms and data providers list multiple zero-coupon PSU and corporate bonds, including issues from well-known groups in power, infrastructure and NBFCs, typically offering higher effective yields to compensate for the absence of periodic coupons. However, because denominations were larger and documentation more complex, most of these instruments did not see widespread participation from smaller retail investors.

With SEBI now explicitly permitting zero-coupon debt securities at a ₹10,000 face value under the NCS framework, issuers like NTPC, SBI group entities, infrastructure SPVs and high-rated NBFCs can structure listed zero-coupon NCS in smaller lots for private placement. Over time, this could lead to a richer menu of listed zero-coupon options across maturities, comparable to what you currently see in regular NCDs and PSU bonds.

Benefits and Risks.

From an investor’s perspective, I see several clear benefits of SEBI’s decision to allow zero-coupon debt securities at ₹10,000 denomination:

• Lower entry point: Smaller denomination of ₹10,000 makes it easier for serious retail investors and small family offices to allocate to zero-coupon instruments without committing large lump sums.
• Predictable maturity value: Because there are no interim coupons, the maturity value and yield-to-maturity (YTM) are straightforward to compute and plan for, reducing reinvestment risk.
• Better portfolio construction: Zero-coupon bonds can be used to lock in specific future liabilities (education, property down payment, retirement needs) with known maturity values.
• Issuer flexibility: Corporates and PSUs get the flexibility of back-ended cash flows without regular interest servicing, which can be attractive for long-gestation projects.
• Market depth: More product variety at lower denominations should support secondary-market liquidity in listed corporate bonds.

At the same time, I always caution Taxgst.in readers about the associated risks:

• Interest rate risk: Zero-coupon bonds are more sensitive to interest rate movements because all cash flows are concentrated at maturity; their prices can fall sharply when yields rise.
• Inflation risk: The fixed maturity payout may lose real purchasing power in a high inflation environment, especially over longer tenors.
• Credit risk: If the issuer’s credit quality deteriorates, the bond’s value and eventual repayment could be at risk, just like any other corporate debt.
• Tax drag: Depending on the tax treatment (capital gains vs interest accrual), the effective post-tax yield can be lower than the headline YTM, particularly for investors in higher slabs.
• Liquidity risk: Despite SEBI’s intent, some privately placed listed zero-coupon bonds may still see thin secondary-market trading.

Let’s strip the jargon. How does a ₹10,000 Zero-Coupon Bond work in the real world?

Imagine Tata Capital or Bajaj Finance wants to raise money. They issue a bond maturing in 10 Years.

• Face Value: ₹10,000 (This is the promise: “We will pay you ₹10k in 2035”).
• Current Yield (Interest Rate): 8.5%.

You don’t pay ₹10,000. You pay the Present Value.

Formula: Price = Face Value / (1 + r)^n
Calculation: 10,000 / (1.085)^10 = ₹4,423

So, you write a cheque for ₹4,423 today. You wait 10 years. You get ₹10,000 back.
Your profit is ₹5,577.

Crucial Point: You receive ZERO cash in the interim. No emails from the bank saying “Interest Credited.” Nothing. Silence for 10 years.

Is this better than an FD?

Financially, yes. Corporate bonds typically offer 1.5% to 2.5% higher yields than Bank FDs. Over 10 years, that difference is massive.

The Tax Trap (The Most Important Section)

Stop skimming. Read this carefully. This is where 90% of investors (and many chartered accountants) get confused.

In India, “Zero Coupon Bond” has a very specific legal definition under the Income Tax Act. Just because a bond pays zero coupons doesn’t mean it’s a “Zero Coupon Bond” for tax purposes.

1. The “Notified” Zero Coupon Bond (The Good Kind)

Under Section 2(48) of the Income Tax Act, a ZCB is a bond that is strictly notified by the Central Government.

• Who Issues These? Only infrastructure capital companies, infrastructure debt funds, or PSUs. (Think REC, NABARD, PFC).
• Tax Treatment: The difference between purchase price and maturity value is Capital Gains.
• Rate: If you hold for >12 months, it is 12.5% LTCG (Post-July 2024 Budget, indexation is gone).
• Accrual: You do NOT pay tax every year. You pay only when the bond matures or you sell it.

2. The “Non-Notified” Deep Discount Bond (The Dangerous Kind)

Here is the problem. The new SEBI circular allows private companies (like NBFCs, Manufacturing cos) to issue these bonds. These are likely NOT going to be “Notified ZCBs” under Section 2(48).

So, how are they taxed?

The CBDT Circular No. 2 of 2002 Nightmare
Decades ago, the tax department realized people were using these bonds to defer tax. So they issued Circular No. 2 of 2002. It states that for Deep Discount Bonds (which are not notified ZCBs):

1. You must value the bond at market rate every year (Mark-to-Market).
2. The increase in value every year is treated as Interest Income.
3. You must pay tax on this “phantom income” every year, even though you didn’t receive a single rupee in your bank account.

Example of the Trap:
You buy a private corporate ZCB for ₹5,000.
Year 1 end value: ₹5,500.
Profit: ₹500.
Tax Impact: You have to add ₹500 to your taxable income and pay tax (say, 30%) on it. You have to pay ₹150 tax from your pocket, while the company paid you nothing.

The Counter-Argument (The Loophole):
Many tax experts argue that Circular 2 of 2002 applies only to “Deep Discount Bonds” and not strictly to all zeros, or that it is often ignored by retail investors who pay on a “Receipt Basis.” However, legally, the risk exists.

My Advice: If you are buying a Private Placement ZCB from a private company (not REC/NABARD), ask your advisor: “Is this a Section 2(48) notified bond?” If the answer is No, be prepared for Accrual Taxation.

The “Sale vs. Redemption” Strategy.

There is one way to beat the system, and it is perfectly legal. It relies on the difference between Redemption (holding till the end) and Transfer (selling on the exchange).

Scenario 1: Retail Investor Building a Medium-Term Portfolio

Imagine a retail investor in New Delhi with ₹1,00,000 to allocate over a 5-year horizon, already holding equity mutual funds and some high-quality NCDs. With the new SEBI framework, this investor can buy ten units of a listed zero-coupon debt security with a face value of ₹10,000 each, issued at a discount to provide, say, an 8% annualised yield-to-maturity. Because there are no interim coupons, the investor need not worry about reinvestment of interest; the focus is simply on holding to maturity and managing credit risk.

The approximate pricing of such a bond can be illustrated using the standard present value formula:

Price ≈ Face Value / (1 + y)^t, where y is the annual yield and t is the number of years to maturity. For a ₹10,000 face value, 5-year maturity and 8% yield, that translates to: Price ≈ 10,000 / (1.08)⁵ ≈ ₹6,806 (rounded), which means an investor pays around ₹6,800 and receives ₹10,000 at maturity, generating a gain of about ₹3,200 before tax per bond.

For tax, if the bond is not a notified specified zero-coupon bond and is held as an investment, the investor may face capital gains on sale or redemption; if the holding period exceeds the long-term threshold for that type of security, long-term capital gains rules apply, otherwise slab-rate short-term capital gains apply under the Income-tax Act. High-slab investors should compare this post-tax outcome to alternatives like tax-efficient debt mutual funds, specified tax-free bonds and other fixed-income options.

Scenario 2: Corporate Issuer Aligning Cash Flows

On the issuer side, a corporate or PSU with a large capex plan might prefer zero-coupon debt securities because they avoid periodic interest cash outflows and instead make a single bullet payment at maturity. Under the new SEBI regime, such an issuer can structure a privately placed listed NCS tranche at ₹10,000 denomination, targeting a broader base of investors while still keeping the instrument plain-vanilla and compliant with the NCS Master Circular (SEBI/HO/DDHS/DDHS‑PoD/P/CIR/2025/145).

For example, an infrastructure SPV could issue 7-year zero-coupon NCS at a discount that implies a 9% yield, with maturity aligned to the project’s expected cash flow ramp-up. This allows them to match long-gestation revenue streams with funding obligations, while investors gain from compounded returns if credit quality is maintained.

When Does It Make Sense to Buy?

• When interest rates are near peak: Locking in a higher YTM in a peaking rate cycle can be attractive, as future rate cuts typically benefit bond prices, especially for longer-duration zero-coupon instruments.
• When you have a defined future goal: If you know you need a specific amount in five to ten years (e.g., higher education, property down payment), a matched-maturity zero-coupon bond can be a useful tool.
• When credit quality is strong: Focus on highly rated issuers (AA and above), especially in the initial years of this regime, to mitigate credit risk.
• When you can hold to maturity: Zero-coupon bonds work best when held to maturity, as interim price volatility can be high and liquidity may be uneven.

For traders and high-net-worth investors, zero-coupon bonds at ₹10,000 also create opportunities to balance equity and derivatives strategies with fixed-income exposure, including potential tax-loss harvesting or timing of redemptions to manage overall tax liability.

(Note: You need liquidity in the market to execute this sale. If there are no buyers, you are stuck with Redemption.)

How to Actually Buy These?

You can’t just walk into a bank and ask for a ₹10,000 Zero Coupon Bond yet. Here is the process:

1. Private Placement Platforms: These bonds are issued via “Private Placement.” Previously, this was offline. Now, we have OBPP (Online Bond Platform Providers). Apps like Wint Wealth, GoldenPi, BondsKart, or The Fixed Income are the gateways.
2. Demat Account: Mandatory. These bonds will sit in your NSDL/CDSL account.
3. The Bidding: When an issue goes live (say, Tata Capital announces a Series), you will see it on these apps. You place a bid for 1 unit (₹10,000) or more.
4. Stamp Duty: Don’t forget the costs. Stamp duty on the issue of debentures is 0.005%. On transfer (secondary market), it is 0.0001%. It’s negligible, but it’s there.

Zero-Coupon Bond Yield Calculator:

Don’t trust the brochure yield. Calculate it yourself. Bond yields can be deceptive because of the “XIRR” vs “CAGR” confusion. For Zero Coupon Bonds, it is simple CAGR.

The Verdict – Buy or Ignore?

I will give it to you straight.

Buy IF:

1. You are in the 30% Tax Bracket and you can find “Notified” (Section 2(48)) bonds. These are gold. They beat FDs hands down post-tax.
2. You are investing for a specific goal (e.g., Child’s Education in 2032) and you want 100% certainty on the final amount.
3. You understand how to sell on the secondary market to trigger the 12.5% LTCG rate.

Ignore IF:

1. You might need the money in an emergency. The liquidity for ₹10,000 bonds will take years to build up. You might have to sell at a discount (high impact cost) if you exit early.
2. You are buying blindly without checking the “Tax Status” of the bond. Do not buy a non-notified corporate ZCB and hold it to maturity unless you are okay with paying slab-rate tax.

SEBI has done its job. They have provided the vehicle. Now it is up to you to drive it without crashing into the tax barriers.

Frequently Asked Questions (FAQs) on SEBI Zero-Coupon Bond Rules 2025.

Disclaimer: The information provided above is based on SEBI Circulars and Income Tax provisions as of December 2025. Tax laws are subject to change. This is not investment advice. Please consult a SEBI-registered investment advisor or a Chartered Accountant before investing in corporate debt securities.

Trusted Authorities & References.

We believe in receipts. Here are the official sources used for this analysis:

• SEBI Official Circular – Circular No. HO/17/11/24(1)2025-DDHS-POD1/I/491/2025 (Dec 18, 2025).
• CBDT Circular No. 2/2002 – Taxation of Deep Discount Bonds (The Accrual Rule).
• Taxmann Analysis – Finance Act 2024 Amendments on Capital Gains (Sec 112A).
• NSDL Stamp Duty Rates – Unified Stamp Duty Framework (2020).

C.K. Gupta

Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.