Investment Product FAQ: Capital Gain Bonds (12)

  • Capital Gain Bonds are bonds notified under Sec. 54EC of the Income Tax Act’ 1961 by investing in which the profits arising from sale of a Long Term Capital Asset would be exempt from tax subject to certain conditions.

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  • For the purpose of Sec. 54EC, a Long Term Capital Asset includes land or building or both sold after a period of 2 years from the date of acquisition.

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  • The amount of exemption available is limited to the amount of capital gain invested in these bonds subject to a maximum of Rs.50.00 Lacs.

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  • Yes, the Long Term Capital Gain made on sale of a Long Term Capital Asset must be invested within 6 months from the date of sale.

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  • The Bonds eligible under Sec. 54EC are notified by the Government. Currently, the eligible bonds are REC (Rural Electrification Corporation Ltd) and NHAI (National Highways Authority of India).

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  • The interest rate on these bonds is notified by the Government from time to time. Currently, the interest rate is 5.75% pa wef 1st April’ 2018.

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  • No, TDS on interest is not applicable on these bonds.

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  • Yes, the interest on these bonds is liable to tax on accrual basis as per the income-tax slab of the assessee.

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  • Yes. Currently the maximum investment limit is Rs. 50 Lacs in a financial year. Partial investment in different financial year for the same transaction of capital gain is not allowed. The above can be explained with the help of following example:

    Mr. A sold a house in January’2018 and earned a Capital Gain of Rs. 75.00 Lacs. He invests Rs. 50.00 Lacs in February’2018 and another Rs.25.00 Lacs in April’2018 in Capital Gain Bonds. The Capital Gains exemption allowed in this case would be limited to Rs. 50.00 Lacs only.

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  • The Face Value of bonds is Rs. 10,000/-.

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  • The block period for investment in these bonds is 5 years.

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  • No, you cannot take loan on these bonds.

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