InvestorQ : What are long term capital gain bonds?
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What are long term capital gain bonds?

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Dhwani Mehta answered.
2 weeks ago
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54EC bonds, or capital gains bonds, are one of the best ways to save long-term capital gain tax. 54EC bonds are specifically meant for investors earning long-term capital gains (LTCG) and would like tax exemption on these gains. You can claim tax exemption on long- LTCG arising from the transfer of capital assets like real estate and gold if you reinvest the gains in capital gains bonds specified under Section 54EC of the Income-tax Act, 1961.

You need to reinvest the gains in these bonds within six months of the asset’s transfer. Also, the exemption is proportionate to the LTCG invested. If the investment is less than the LTCG realized, only proportionate gains would be tax-exempt. Currently, capital gains bonds from the National Highways Authority of India and the Rural Electrification Corp. Ltd is available for investment.

Both have a lock-in period of 5 years and offer an interest rate of 5% per year, to be paid annually. Interest earned from these bonds is taxable in the hands of the investor. Do know that you can’t transfer or convert these bonds into money or take any loan or advance against them for five years from the date of acquisition, else the tax exemption benefit would be withdrawn.

Section 54EC bonds come with a host of advantages. Here are four reasons why you should invest in capital gain bonds:

  • Exemption on capital gain: The primary benefit of this product is that it helps you save on taxes on your capital gains. The exemption is for the amount of capital gain or the amount of investment made, whichever is less.
  • Assured income: You stand to gain an annual interest of 5% on your investments. So, you can rest assured of your income from your investment in 54EC bonds.
  • Ease of access: You can hold 54EC bonds in Demat format or physical format.
  • Safe investment: Capital gain bonds are backed by the government of India. You can invest in these bonds and not have to worry about returns.
Capital gains bonds are a great option for anyone looking to save on taxes paid. They can be bought from any public sector bank like State Bank of India, Punjab National Bank, etc. Many asset management companies like HDFC, Kotak, etc also give you the option of buying capital gain bonds. You can also invest in these bonds online through various financial services platforms and apps. 

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