Sale of any capital assets will attract capital gains tax
On sale of any capital assets which were held for more than 3 years shall be chargeable to tax as long-term capital gains. Long term capital gains will be taxed at a higher rate.
To save from taxes, income tax act has provided some deductions under section 54. Under this section, if you invest the gain into some other bonds or properties, you will be given a deduction.
Section 54EC: -
• Only Long term capital gain can be invested under this section.
• All the assesses are eligible under this section.
• A long-term capital asset must have been transferred by an assessee and gain must be earned.
• Within 6 months from the date of transfer of the asset, he must have invested in NHAI & REC bonds.
• Maximum investment that can be invested in these bonds is Rs.50 lakhs during any financial year.
• The bonds must have maturity period of at least 3 years.
Capital gain bonds: -
1. Only National Highway Authority of India (NHAI) and Rural Electrification Corporation of India (REC) are authorized to issue capital gain bonds.
2. Interest will be paid annually.
3. Interest rate is 5.25% per annum, w.e.f 01/12/2016. Earlier it was 6% p.a.
4. These bonds are AAA rated bonds, which means they are secure and highly stable.
5. Face value of each bond is 10,000 and Issue price is also 10,000.
6. Maximum number of bonds that can be purchased is 500 bonds.
7. These bonds are not listed in stock exchange.
8. These bonds cannot be transferred or negotiated or offered as security for any loan.
How to apply for capital gain bonds: -
1. Download the application forms from the NHAI and REC websites & fill them.
2. Deposit these forms in the designated banks.
3. The entire amount of investment has to be paid on application.
4. Banks will allot the required application form number and will accept the application.
5. Once the amount has been paid along with application for allotment of bonds, it cannot be revoked.
6. After allotment of these bonds, they can be held in DEMAT or physical form.
1. Self-attested copy of the PAN card.
2. A cancelled cheque.
3. Address proof.
Is interest on these bonds taxable?
1. Interest on capital gain bonds is taxable under the head “Income from other sources”.
2. TDS is not deductible on this interest by the paying company.
Newly introduced amendments: -
• Earlier investment in capital gain bonds in any financial year shall not exceed 50 lakhs.
• From the A.Y 2015-16 onwards; the exemption of 50 lakhs is allowed even if investment is made in 2 financial years but with reference to single assessment year.
• Once deduction is claimed under section 54EC, no deduction is allowed under section 80C with reference to the same investment.
Whether 54EC & 54F both can be claimed?
On transfer of a Long-term capital asset (not being a residential hose), the assessee can avail both benefits of sec.54F for the investment in a residential house and by making deposit in bonds specified U/s 54EC.
The decision of investing in capital gain bonds or not depends in the benefit you get. The interest paid on capital gain bond is less when compared to another investment. If you are able to get a better return than the capital gain bonds it is better to not invest. Another dis-advantage of capital gain bonds is lock-in period. So, if you are sure that you have no immediate requirements of heavy amounts, then only invest in these bonds.