New Delhi, March 20 :    New Delhi, March 20:  The tax on income accruing from deep discount bonds will be charged on an accrual basis every year which, the government says, is a settled practice globally. The new tax treatment for deep discount bonds will not be applied retrospectively-this means existing bondholders will not come under the modified tax treatment. The modification will be applicable to only those bonds that are issued after the notification of the CBDT circular dated February 15, 2002. A clarification issued by the revenue department in the finance ministry says that non-corporate persons who invest small amounts in new issues (face value up to Rs 1 lakh) can still opt to be taxed under the old system. Defending the move, the government said the modified tax treatment for deep discount bonds corrects the anomalies in the system by providing a mechanism for taxing income accruing from year-to-year on these bonds on the same lines as the income from normal coupon-bearing bonds is taxed. The transfer of the bonds before maturity will attract capital gains tax as in the existing system. A press note issued today said the earlier system of taxing the entire income received from such bonds in the year of redemption as interest income was anomalous, as it gave rise to a sudden and huge tax liability in one year, whereas the value of the bond had been progressively increasing over the period of the holding. If the bonds were redeemed by a person other than the original subscriber, the person was taxed on the entire difference between the bid price and the redemption price as interest income. Such a system created tax-induced distortions in the debt market, also posing an impediment to the development of a market in STRIPS, that are essentially zero-coupon instruments derived from normal coupon bearing bonds.