The Central Government has officially approved REC Limited's zero-coupon bond issuance through a notification dated May 30, 2025, under the Income Tax Act, 1961
Janvi | Jun 3, 2025 |
CBDT Notifies Zero Coupon Bond for Section 2(48) of the Income Tax
The Central Government has officially approved REC Limited’s zero-coupon bond issuance through a notification dated May 30, 2025, under the Income Tax Act, 1961. This represents one of the largest zero-coupon bond offerings in the Indian market.
CBDT Notification
The “Ten-Year Zero Coupon Bond of REC Ltd” will have a life span of ten years and six months. Unlike traditional bonds that pay periodic interest, this zero-coupon bond will be issued at a discount and mature at full face value.
The financial structure has a negligible impact: the investors will receive Rs 5,000 crores at maturity, while the bonds will be placed at a public discount of Rs 2,200 crores. Thus, it means the effective purchase price will be Rs 2,800 crores, with the Rs 2,200 crores difference representing the investor’s return over the life of the bond.
The government has given permission to issue five lakh bonds (500,000 units) with a face value of Rs 10,000 per bond, which are available to institutional and individual investors.
The bonds are scheduled to be issued on or before March 31, 2027, providing REC Limited nearly two years to optimise market conditions for the launch. The notification, signed by Meenakshi Singh, Deputy Secretary from the Department of Revenue in the Ministry of Finance, gives complete legal cover under clause (48) of section 2 of the Income Tax Act and rule 8B of the Income Tax Rules, 1962.
For REC Limited (formerly Rural Electrification Corporation Limited), the bond represents a significant opportunity to raise capital to fund power sector infrastructure projects across the entire country. The fact that it is a zero-coupon provision means that the company won’t have to use cash flow on periodic interest payments, allowing greater cash flow flexibility for its project financing activities.
The investment-grade bonds have a wonderful set of attributes in their government notification backing, guaranteed returns and tax benefits. There is a significant discount structure creating a net annual return that can rival other long-term investments.
The bonds are expected to attract institutional investors such as insurance companies, pension funds, and mutual funds seeking stable, long-term investment vehicles. Individual investors looking for tax-efficient investment options may also find these bonds appealing.
The issuance was published in the Government of India’s extraordinary gazette on June 2, 2025, under notification number 52/2025, emphasizing its official status and significance in India’s corporate bond market.
This approval marks a significant development in infrastructure financing, positioning REC Limited to strengthen its capital base while providing investors with a government-backed, long-term investment opportunity in India’s growing power sector.
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