Editing Zero-coupon bond (section)

==Taxes==
In the United States, a zero-l coupon bond has [[original issue discount]] (OID) for tax purposes.<ref>{{USC|26|1273}}</ref> Instruments issued with OID generally impute the receipt of interest, sometimes called phantom income, even though the bonds do not pay periodic interest.<ref>{{cite web
  | title =Zero Coupon Bonds
  | publisher =U.S. Securities and Exchanges Commission
  | url = https://www.sec.gov/answers/zero.htm
  | access-date =2007-11-17}}</ref>

Therefore, zero coupon bonds subject to US taxation should generally be held in tax-deferred retirement accounts, to avoid taxes being paid on future income. Alternatively, when a zero coupon bond issued by a US state or local government entity is purchased, the imputed interest is free of U.S. federal taxes and, in most cases, state and local taxes.

Zero coupon bonds were first introduced in the 1960s but did not become popular until the 1980s. The use of such instruments was aided by an anomaly in the US tax system, which allowed for deduction of the discount on bonds relative to their par value. The rule ignored the compounding of interest and led to significant tax-savings when the interest is high or the security has long maturity. Although the tax loopholes were closed quickly, the bonds themselves have remained desirable because of their simplicity.{{citation needed|date=January 2020}}

In India, the tax on income from deep discount bonds can arise in two ways: interest or capital gains. It is also a law that interest has to be shown on an accrual basis for deep discount bonds issued after February 2002, as per CBDT circular No 2 of 2002, dated 15 February 2002.{{citation needed|date=January 2020}}