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Individuals are typically allowed to invest in these bonds within a specific period, usually six months from the date of the asset transfer. In case if the capital gain bonds are converted into cash before the period of maturity, then the amount so invested on which tax exemption was claimed, shall be taxable as long-term capital gain in the year of conversion. It’s important to note that the investment in these bonds must be made within 6 months from the date of the sale of the asset generating capital gains. Additionally, the capital gains that are invested in these bonds must be long-term capital gains, which are gains from the sale of an asset that was held for more than 2 years.
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This decision might be because the government told NHAI to be careful about borrowing money for the next three years, so they don’t end up owing too much. NHAI already has a lot of debt, around ₹3.44 trillion as of January 2022. The transaction may not be supported if there are sanctions imposed on the country of the overseas customer.
Updated List of 28 Banks For Income Tax Payments on e-Filing Portal
NHAI and REC had issued 54EC Capital Gain Bonds, which are specifically designed to save taxes on long-term capital gains. The bonds have a lock-in period of three years, and the interest rate offered is 5.25% per annum. If the individual fails at investing within the specified time frame, he/she can also deposit the amount in a Public Sector Undertaking (PSU) bank. In that case, the deposit will be viewed as an investment in capital gains bonds in India upon which tax exemption will be available under the Capital Gains Account Scheme, 1988. However, if such deposit does not convert to an investment within 2 years, it will be treated as a short-term capital gain in the year of expiry.
What is a Capital Asset?
A long-term capital gain is any revenue that you get from the sale of an asset. According to the Income Tax Act, you are liable to pay tax for such gains. However, you can reduce the liability of these taxes.Invest in section 54EC bonds, also commonly known as capital gain bonds, to avail tax deductions in the future.
Section 54EC – Deduction on LTCG Through Capital Gain Bonds
Funds collected from these bonds are mostly used by Government organisations to invest in infrastructure and real estate. Under Section 54EC of the Income Tax Act, the comparable tenure of capital gain bonds is five years. This means that once differences between debt and liabilities an individual invests in these bonds, he must sustain at least five years. The investment has to be made within six months from the date of the transfer in order to be eligible for claiming the benefit of deduction under section 54EC.
Manage Your Investments
You can buy these bonds online through the respective company’s website or contact a broker. Irrespective of how you buy them, you must invest within 6 months of transferring the asset. The hidden liabilities affect the value of a business minimum investment allowed is Rs. 10,000 and maximum is Rs. 50 lakh. To avail the tax exemption, you need to invest in these bonds within 6 months of the date of the sale of the property.
- However, there are various ways to avoid this tax or minimize your capital gains tax liability.
- Yes, NRIs can claim the exemption the exemption under section 54EC of the Income Tax Act.
- Investors who purchase capital gains bonds are known as debt holders.
- However, you will not be able to get the tax exemption benefits under section 54EC.
- Section 54EC bonds, also known as Capital gain bonds are fixed income instruments which provide capital gains tax exemption under section 54EC to the investors.
It can be considered a benefiting situation for both the investor and the economy. The exemption claimed under section 54EC would be withdrawn, in case the long term specified asset is transferred or converted into the money before the expiry of the period of three years or five years, as the case may be. Section 54EC exemption is available only towards the capital gain arisen on account of transfer of long term capital asset (being land or building or both). The taxpayer must invest the capital gains or the net consideration, whichever is lower, in Section 54EC bonds within six months from the original asset’s sale date.
In most of the cases, the taxpayers will benefit substantially. But where the gain is limited vis-a vis inflation, the benefit will also be limited or absent in a few cases. The European Commission welcomes the decision of the European Central Bank to be treating EU-Bonds in the same way as bonds issued by central governments and central banks under its risk control framework.
54EC are capital gain bonds, that is used to receive the capital gain tax exemption. If you have received capital gain from selling a property, you can invest in these bonds to avoid paying capital gain tax. However, you will not be able to get the tax exemption benefits under section 54EC. The income earned from whats the difference between a sales order and an invoice the long-term capital gains will be taxable from the year you obtained the loan. NRIs can buy capital gains bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC), etc. to save tax on their long-term capital gains from the sale of their property in India.
The applicable rate of tax on such capital gains will be 20% excluding cess and surcharge. These bonds typically have a lock-in period of 5 years and offer an interest rate ranging from 5% to 6% per annum. The maximum investment that can be made in these bonds is Rs. 50 lakhs per financial year. Capital Gain Bonds are a type of investment instrument that offer tax-saving benefits to investors. The Indian Railway Finance Corporation (IRFC), National Highways Authority of India (NHAI), Power Finance Corporation (PFC), and Rural Electrification Corporation (REC) are some of the entities that issue such bonds.
Such investment amount can be redeemed by the investor only after 5 years. This shift in the period has increased the revenue from interest on these capital bonds in 2019. As shown in example, assessee has tried to take double benefit of section 54EC by investing the amount in two different financial years but within six month after the date of transfer. But this planning is nullified by the Second Proviso u/s 54EC. The reduction in the rate will benefit all category of assets.
54EC bonds allow Indian investors to save taxes on long-term capital gains by investing in government-backed entities like PFC, IRFC, and REC. These bonds have a lock-in period of 5 years with interest rates around 5-6% per annum. Investors can compare them with FDs, PPF, and Debt Mutual Funds for returns.
54EC bonds are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains. Tax deduction is available under section 54EC of the Income Tax Act. 54EC bonds do not allow any tax exemption on short-term capital gains tax. The maximum limit for investing in 54EC bonds is Rs. 50,00,000. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and IRFC (Indian Railways Finance Corporation Limited).
We will be discussing one such exemption given under Section 54EC in detail. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The finance budget of 2018 has amended section 54EC of the Income Tax Act, 1961.
These bonds are highly secure, sovereign in nature with a AAA rating. Schedule a call with an investment expert to get complete help regarding investment in 54EC Bonds in India. Insurance is not a Exchange traded product and the Member is just acting as distributor. All disputes related to the distribution activity of insurance will not have access to Exchange investor redressal forum or Arbitration mechanism. The securities are quoted as an example and not as a recommendation. You can apply for the 54 EC bonds offline (Physical) and online.