With just over a few months left in the current tax year, many of us would already be doing year end tax planning and sussing out options to invest to either gain a tax deduction or tax exemption. We all have Rs.150,000 covered under section 80C in the form of PF or FDs or like. And an additional deduction allowed up to a limit of Rs.50,000 under section 80D. To avail the tax exemption, you need to invest in these bonds within 6 months of the date of the sale of the property.
C Bonds Capital Gain Bonds Features and Benefits with Examples
As always, you need to align your investment decisions in light of your financial goals and the capability and strategy of tax planning. This way, you make most of your investments in 54EC bonds. 54EC bonds are specific types of bonds issued by government-approved entities like the Power Finance Corporation Limited (PFC), Indian Railways Finance Corporation what you need to know about tax season 2020 Limited (IRFC), and the Rural Electrification Corporation (REC). Assume, for instance, that there is long-term capital gains of ₹50 lakh that is taxable, after indexation benefit as applicable. A sum of ₹50 lakh invested in 54EC bonds would fetch a defined return of 5 per cent per year. This coupon/interest is taxable at, say, 30 per cent (your marginal slab rate), ignoring surcharge and cess for simplicity.
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. 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. Capital Gain Bonds, especially 54EC Bonds, serve as an ideal destination for funds when investors are averse to investing in another property or capital asset. This choice helps them save on long-term capital gain taxes, which can be substantial for assets like property and jewelry.
NRI Investment in Bonds is a very popular and rewarding opportunity. In addition, capital bonds offer dual benefit of wealth creation and tax saving. If you have any doubts or queries and want specialized advice from experts at SBNRI, contact us the dividends account using the button below. 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.
Sec 54 EC – Capital Gains Bonds
- 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 54ec capital gain bonds are tax exemption bonds, allow you to avoid paying tax on capital gains arising from selling property.
- As per the Finance Act (no.2) 2014 amendment, you can’t invest more than Rs. 50 lakh in the capital bonds under Section 54EC.
- Recent Budget 2024 changes rates for short & long-term capital gains.
- Most importantly the taxpayer will have to, within 6 months of sale or transfer, reinvest the proceeds from the sale of a long term asset into a 54EC bond.
For our comparison, we assume a yield (i.e. annualised return) of 4.25 per cent for investing in tax-free PSU bonds. ₹50 lakh invested in 54EC bonds, compounding at approximately 3.5 per cent per year, grows to ₹59.38 lakh after five years. ₹40 lakh, which is the net amount that remains in case of option (b), invested at 4.25 per cent tax-free, grows to ₹49.25 lakh after five years. Hence, investing in 54EC bonds at 5 per cent (pre-tax) is a better option than paying the LTCG tax and investing the remaining amount.
A Review of NIDO Home Finance Limited’s Bond Public Issue
In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments. Schedule a call with an investment expert to get complete help regarding investment in 54EC Bonds in India.
Against ₹59.38 lakh in case of 54EC bonds, ₹40 lakh invested at 5.25 per cent grows to ₹51.6 lakh after five years. Though somewhat higher than the startup cpa ₹49.25 lakh from tax-free bonds, this is lower than the ₹59 lakh from 54EC, bonds making the latter a better option. The assessee has invested the amount of capital gain (wholly or partly) in the long term specified assets.