[MyFamilyInvestment] Capital Gain Bonds - Save Tax

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Dec 19, 2012, 11:58:19 AM12/19/12

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Long term capital gains arises when you hold any asset for a defined period. This period ranges from one year to three year across different asset classes. For example, in case of equities, it is more than one year and in case of real estate it is more than 3 years. Investors can save tax on long term capital gains by investing the gains in specified bonds. These bonds are popularly known as 54EC bonds, borrowing its name from Section 54EC of the Income Tax (I-T) Act. Under Section 54EC, the capital gains need to be invested in specified bonds within a period of six months from the date of sale of the capital asset in order to qualify for the exemption. The entire gains will be exempt if the equivalent amount is invested in these bonds.

There are 2 bond schemes in which the investor can invest in:
1. NHAI Capital Gain Bonds
2. REC Capital Gain Tax Exemption Bonds

These bonds typically opens at the start of the financial year (1st April) and closes at the end of the financial year (31st March) or if the bond issue target is achieved.

Features of the Capital Gain Bonds:

1. The face value and issue price of the bond is Rs 10,000 per bond.
2. Minimum application size is 1 bond or Rs 10,000.
3. Maximum application size is 500 bonds or Rs 50 Lakhs.
4. Interest Rate is 6% per annum and is paid annually.
5. Deemed date of allotment is the last day of each month for application money cleared and credited in NHAI or REC's collection account.
6. These Bonds are non-transferable, non-negotiable and cannot be offered as a security for any loan or advance.
7. Maturity is 3 years from the deemed date of allotment.
8. No tax will be deducted at source.