Invest in Section 54EC Bonds to save capital gains tax

by Manshu on March 7, 2011

in Fixed Deposits, Tax

There was a question on the forum on how you can save capital gains that arise from selling property, and Loney responded to that by the suggesting the Section 54EC Capital Gains exemption bonds.

I have not written about them earlier, so I thought I’d do a post on these bonds now. So, here is a post with some details on 54EC bonds.

Who should buy Section 54EC Bonds?

These bonds are specifically meant for people who have made some long term capital gains, and would like to save capital gain taxes on this amount.

Only long term capital gains are eligible for these bonds though, and short term gains are not covered under section 54EC.

54EC Bonds FAQ

54EC Bonds FAQ

What is the upper limit for investing in these bonds?

The maximum gains are capped at Rs. 50 lacs in a year, so you can invest in a maximum of Rs. 50 lacs worth of 54EC bonds in a year to avail of the tax benefit.

Please note that the section is not cut and dry, and there are conditions on how much money will be exempted based on whether the profit made is more than the cost itself, and I will try to detail out the sections in a later post, or if you have a link that does a good job of explaining this then please leave a comment and I’ll link to it.

Who is issuing 54EC bonds?

REC (Rural Electrification Corporation) is issuing these bonds, and from the current information present on their website I see that they will be issuing these bonds till March 31st 2011.

Here are their contact details:

(Application Form can be downloaded from the website : http://rec.rcmcdelhi.com)

a Our Registrar to the Issue :
RCMC Share Registry (P) Ltd.
B-106, Sector-2, NOIDA
U.P. -201301
Ph.: 0120-4015880-81
Fax: 0120-2444346
Email:bonds@rcmcdelhi.com
Website : http://rec.rcmcdelhi.com

a For Investor Grievances
& Non-Priority  Sector Bonds
Email : bonds@rcmcdelhi.com

a For any assistance or clarification please contact:
Investor’s Relation Cell
Core-4, SCOPE Complex
7, Lodhi Road
New Delhi – 110003
Email: investorcell@recl.nic.in
Phone : 011-24361320, 011-2436 5161 extension 527
Tollfree No. : 1800-200-1333


NHAI is also issuing 54EC bonds, and their details can be found on this page.

What is the interest rate on 54EC bonds?

Currently, both REC and NHAI are offering 6% interest on their bonds.

What is the lock in period of these bonds?

The lock in period of these bonds is 3 years, so you can’t sell them before the 3 years.

Is the interest on these bonds taxable?

Yes, the interest from these bonds is fully taxable, and there is no exemption on that. TDS is however not charged on them.

Who can invest in these bonds?

Resident individuals, HUFs, partnerships, companies, banks, financial institutions, regional rural banks, co-operative banks, insurance companies, provident funds, super annuation funds, gratuity funds, mutual funds, FIIs, trusts authorized to invest bonds, NRIs investing out of NRO account on non repatriable basis can invest in these bonds.

So, everyone except your pomeranian can invest in these bonds.

Where can I buy these bonds?

A lot of bank branches sell these bonds, so you can ask at your local bank. Unfortunately, I don’t have a list of branches with me, so you will have to rely on other sources, or check with your local branch.

Do I need a demat account for them?

No, you don’t necessarily need a demat account for them because the bonds are issued in paper as well as demat form.

I’ve tried to cover whatever points I could think of about these bonds, but I’m sure there are several aspects that I missed, so feel free to ask any questions in the comments section, and of course any other observations are also welcome.

 

{ 107 comments… read them below or add one }

Ramesh March 9, 2011 at 9:54 PM

excellent concise info.

I will like to add that upper limit of 50 L can be easily increased to 100 L by timing your sale and depositing 50L before 31 March and another 50 L after 1April. this is necessary as property values have sky rocketed recently.

however another problem is black money in most sales. Are there any means to sell a house/plot in Delhi with white only deals; even if the value received is 10-20% less than market value and you are ready to pay 20% capital gain tax beyond permissible upper limit of 54E? what are other pitfalls in such white only deals especially when market value is high say 5-6 crores and you donot wish to buy another property.

Reply

Manshu March 10, 2011 at 5:31 PM

So sell around March and then invest in March and April to get the double benefit…am I understanding this correctly? Thanks!

Reply

Vivek March 26, 2011 at 9:45 AM

If a US citizen invests in the bonds for 3 years, can he/she then repatriate the funds (without having to pay Capital gains tax in the US)?

It appears, from all that I have researched, that the repatriated funds have to be declared as income — and that the US tax laws may not recognize the bonds/excemption as being equivalent of paying the capital gain taxes in India.

Any advice?

Reply

Sam September 13, 2011 at 7:00 AM

Did you get any response to your question ? I would like to know the answer.

Thanks

Sam

Reply

Max March 15, 2016 at 8:29 PM

Did you get an answer for this question? I am in the same boat.
Thanks

Reply

Ramesh March 12, 2011 at 1:14 AM

yes. actually all investments in 54 ec have to be completed within 6 months from the date of transfer of an asset. so scheduling the sale appropriately between Oct and March and investing 50 L each anytime after sale in same and in the next financial years is possible.

Reply

Manshu March 14, 2011 at 3:41 PM

Thanks Ramesh!

Reply

RAJIV MEHTA December 13, 2011 at 8:48 PM

I have got capital gain from selling my ancestral property in june-28,2011. i want to invest in infrastructure bonds. what is the time limit after getting capital gain.

Reply

Bharat Bhushan sharma May 9, 2011 at 4:45 AM

dear Sir
I have invested rs. 20,000 in REC infrastructure bond in March 2011 vide cheque No. 007324 dated 26-03-2011 payable in PNB Bank . The amount of 20,000 has also been taken away by the REC through HDFC bank Jaipur.
It is requested that my BOND for this investment has yet not been delivered to me till date and due to this i am facing problem to submit my annual income tax return to income tax depertment .
In this context you are requested to please arrange the delivery of my BOND for my investment at an earliest so that i can submit my return.
Thanking You

Bharat Bhushan Sharma S/O Shri Rameshwar dayal Sharma
Ward No-27 Mini Market
Near Railway station
Suratgarh(RAJ.)
Distt:- Sri ganganagar
Ph. 9413382455

Reply

Manshu May 9, 2011 at 11:03 AM

This is not the REC website – this is like a newspaper – please contact whoever sold you this fund to get an answer. Leaving a comment here will not help you.

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Amul June 22, 2011 at 2:42 PM

I had invested my long term capitial gain amount, received from sale of residential property, in a Captial Gain Account – Type A in Bank of Baroda. It will complete 2 years this july.. Now since the property rates have sky rocketed and i’m not in a position to buy anything at the moment, can anyone assist in what options are open to me?
Incase, 2 years lapse and I don’t do anything, will I have to pay the 20% tax on it before withdrawing?

Reply

a k sinha July 9, 2011 at 6:06 PM

The best way is to invest in another house/flat, unless you already possess two houses/flats. If you do possess two houses/flats or you do not wish to invest in house/flat, the ony option is to invest in REC or NHAI Bonds. There is no other way to save the capital gaons tax. Of course, other option is to pay the tax itaself. Please go through the intricacy of two clauses of section 54 EC which deal with proprtionate exemption of capital gain. Also, in case you are buying a flat which shal take more than two years but less than three years to effect the registration and possession, the question that crops up is whether the construction of the flat by the builder can be deemed as being constructed by the assessee? This needs clarification by CAs, etc. No one could really explain as the section itself is silent on this. A. K. Sinha – e mail id : aksinha_60@yahoo.com

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Selva July 21, 2011 at 5:31 AM

I could not find answer for the following case by Googling.
I planned to reinvest the long term capital gains on another property to avoid capital Gains tax. Until I find a right one, I deposited the gains in a capital gains account. It has been more than six months. Can I now take gains and by NHAI bonds? Is it allowed?
I appreciate your advice on this matter.
-Selva

Reply

Chandrashekhar Dixit August 5, 2011 at 4:43 PM

Hi,
I just want to know that after investing capital gain money in 54EC bonds for 3years locking period, will this money be a tax free amount?

Reply

Yeshwant. August 26, 2011 at 4:47 PM

I NEED CLARIFICATION,FOR THE FOLLOWING:
LONG TERM CAPITAL GAIN.
GUIDELINE LAND SALE CONSIDERATION—————————RS.80,00,000.00.
LAND SOLD FOR RS.40,00,000.00.
INDEX RS. 2,00,000.00.
————————-. —————————-RS.42,00,000.00.
———————————-
LONG CAPITAL GAIN ————————————–RS.38,00,000.00.
INVESTED RS.50,00,000.00. IN NH.BOND.
LONG TERM CAPITAL GAIN-NOW ARRIVED AS RS.80,00,000.00.
LESS INVESTMENT IN NH BOND RS.50,00,000.00.
—————————–
LONG CPITAL GAIN TAX ON RS.30,00,000.00.
——————————
IS THIS WORKING CORRECT OR WRONG.
PLEASE LET ME KNOW.
THANK YOU,

Reply

AMIT December 10, 2011 at 1:09 PM

I would like to know the experts opinion regarding the sale of an ancestoral house . IS capital gain tax applicable on the money recd by selling an old house standing in deceased fathers name , the proceeds of it are received by his son. ?

Reply

Saurabh February 20, 2012 at 11:23 AM

I had a capital gain in 2011-2012 with the money transferred to my account in June 2011. six months have passed and i forgot to put it in 54E. now before the financial year end can i put this amount in REC/PFC bonds and still be spared of the tax. moot point is that i have delayed by 3 months in putting in the bond what is the tax implication?

Reply

Jitendra P.S.Solanki February 23, 2012 at 4:34 PM

Saurabh,

You will have to pay the tax on this gain as the maximum time limit is 6 months within which you should utilize the funds or deposit in a capital gain scheme.

Reply

Ashish February 22, 2012 at 2:10 PM

Dear Sir,
My uncle purchase a residential property in 2004 for Rs 10 lakh and wish to relocate to their native place.
The Current valuation of the property is now now around 53 Lakh as per the circle rates.

If they sell this property and but a new one against the same for Half the value of Current Property. What options are available to them for saving tax on Capital gain.

The property is in Join Account of My uncle and aunt, both are senior citizens.

As per my calculations by the details given in your other resolved queries

Sell: 53,00,000(assumed)
Purchase: 23,00,000 (assumed)
Indexed Purchase Price: 16,50,000
Taxable Income: 13,50,000

My Querries are:
Am I correct with the Approx Calculations?

Can the Renovation of New Property deducted in the taxable income?

What can be done to save tax on the Taxable income?

Can 2 Properties be purchased to save the taxable income?

What is the difference between Tax rate with Indexation and Tax rate without Indexation ?

Reply

Jitendra P.S.Solanki February 23, 2012 at 4:21 PM

Ashish,

1. The benefit of indexation should reduced your capital gains.Hence recheck the calculation.

2. Renovation is not counted for tax exemption-only purchase or construction of new house

3.You can either buy/construct a new house or invest in capital gains bond falling under SEC 54EC . These are issued by Nabard,NHAI every year.

4. No

5. Tax Rate with indexation are higher then tax rate without indexation benefit.However, in real estate you have flat rate of 20% with indexation benefit.

Reply

Ashish February 23, 2012 at 5:57 PM

Dear Sir, i have rechecked the Calculation … the exact amount on 10 Lakh till date as per the CII is 16.35

here is the calculation please tell me if I am incorrect anywhere

Purchase Year = 2004-05, Purchase Cost = 10L, Cost Inflation Index (CII) for purchase year = 480
Sale Year = 2011-12, Selling price = 53L, CII for sale year = 785
Indexed Purchase price = 10L x (785/480) = 16.35L
Re investment on property = 20L
Long term capital gain = 5300000 – 16.35L – 20L = 16.65
Income tax on capital gain = 16.65 x 20% = 3.33L

Reply

Jitendra P.S.Solanki February 24, 2012 at 12:01 PM

Ashish,

You can avail the benefit only on capital gains which is 53-16.35=36.65L.

Tax on this will be R 7.33 lakh which you can save by Reinvesting in another property.

When did you made Reinvestment and what does it pertains to? I am not clear on this ….

Reply

Ashish February 24, 2012 at 2:01 PM

Dear Sir,

My uncle is just planning for it and the purchase figures are just assumed ….

the valuation as per the housing registration committee for the property is 53L as mentioned by me.

I assumed that if i invest around 20L from the 36.65L … the rest can be invested in bonds or something else ?

Reply

Jitendra P.S.Solanki February 25, 2012 at 10:57 AM

Ashish,

Yes, you can break up your Capital Gains investment in a property and Capital Gains Bond Issued by NABARD or NHAI.

Reply

Rachna July 26, 2012 at 2:18 PM

Dear Mr Solanki
My mother opened a capital gain account within 3 months of selling the property
property sold march 2012
1st property purchased march2012
capital gain with bank april 2012
2nd property deal to end august 2012
money will be still left in the capital gain account
can she then reinvest them in captial gain bond
can she withdraw money from capital gain account and instead of buyin property buy bonds
is it possible

Reply

reshma March 2, 2012 at 12:29 PM

Hi Experts,

My query is that we had invested 50lacs in rec bonds for three years in dec.2009, till date we are not able to decide on a new property.

The REC 54EC three years shall expire in dec.2012, what are my options

1) can I renew the bonds in REC or have to move to another option like NHAI.
2) can the proceeds be transferred to a regular fixed deposit with the interest earned being taxable.
3) or do i have to pay tax.

Please advice/guide.

Reshma

Reply

Jitendra P.S.Solanki April 13, 2012 at 10:40 AM

Reshma,

Capital Gains tax exemption is available only when you either invest in REC bonds till the lock in period or in property within three years of selling.Once your investment in bonds mature you can invest it anywhere as no tax exemption scheme will be applicable.

Reply

vinay gupta March 3, 2012 at 2:43 PM

my quary

i have sold my fathers property of Rs. 20 Lac after his death with my mother & brother equally, will capital gain charged

Reply

Jitendra P.S.Solanki April 13, 2012 at 10:37 AM

Yes,

Capital Gain will be charged after indexation benefit.

Reply

MSC Bhandary March 20, 2012 at 8:59 AM

It seems now it is possible to invest maximum upto Rs 50 lacs in Govt bonds to avoid Long term capital gain tax from residential house property sale . Investments in March Rs 50 lacs and AprilRs 50 lacs is not permissible now . Is it so ?

Reply

Umesh April 13, 2012 at 3:43 PM

Yes, you can, provided 6 months condition is fulfilled. Refer to an article link http://www.livemint.com/2012/03/01203751/How-to-save-longterm-capital.html

Reply

Umesh April 13, 2012 at 3:47 PM

Yes, you can, provided 6 months condition is fulfilled.
Refer to an article link http://www.livemint.com/2012/03/01203751/How-to-save-longterm-capital.html

Reply

naqiya March 27, 2012 at 2:14 PM

Dear Sir
I would like to know what would be considered as the date of Investment in REC Bonds? Whether it will be the cheque clearing date or the date when the government issues the bond or some other date? Please let me know as soon as possible.

Reply

Manshu March 27, 2012 at 4:29 PM

For 54EC bonds? That will be when they issue that to you.

Reply

naqiya March 27, 2012 at 5:07 PM

yes for 54EC bonds what would be the date of investment?

Reply

RAKESH KUMAR JAIN April 7, 2012 at 1:12 PM

I have 2 queries:

1. One can buy Capital Gain bonds with in 6 months of receiving sale money. So, the money
received will be lying in bank SB account or short term FDs till it is used to invest Capital Gain
Bonds & will earn some interest. Will the interest clubbed with the annual income of the
person for taxation purpose?
2. The upper limit for investment in Capital Gain bonds is 50L annually or for bonds from
one company i.e. can one buy bonds for 30L from one company and say for 30L from
another company?
3. If the limit on investment in Bonds is 50L, what can be done if Capital Gain is more than
50L?
4. As per my knowledge REC and NHAI offer Capital Gain bonds (54EC). In one of the posts
above it is mentioned that these are issued by Nabard,NHAI. What is Nabard? Is this
company authorized to issue 54EC bonds?

Reply

Manshu April 9, 2012 at 3:39 AM

Don’t know about the first one, but for the second one as far as I know the overall limit is 50 lacs and there are various complexities within that as well, so it’s better to discuss your specific situation with a practicing CA who may advise you on this.

This is NABARD’s website and I’m not quite sure if they issue 54EC bonds currently or not. http://www.nabard.org/

Reply

Jitendra P.S.Solanki April 13, 2012 at 10:20 AM

Rakesh,

1.Till your capital gains earned from property is utilized it need to be deposited with a Capital Gain Account available with nationalized bank.Do remember that the money has to go in this account and not any other normal bank account.

2.The maximum limit is 50 lakh even for exemption.Above this you will have to pay income tax.

3.These bond are issued by three institutions-REC,NHAI and NABARD every year.

Reply

Umesh April 13, 2012 at 4:19 PM

Hi Rakesh

There are so many complexities with ifs and buts in our tax laws that it is difficult for a common person a take a clear cut action. As rightly said by Manshu you should consult a practicing CA on this issue.

For more information please refer to following article that I came across with in MINT newspaper, a few weeks back and I hope you will get answer to some of your queries
http://www.livemint.com/2012/03/01203751/How-to-save-longterm-capital.html

Also the interest earned by you in SB/FD as mentioned by you in point 1 will be added to your total income and hence taxable. FYI, the interest income on Capital Gain Account Scheme accounts is taxable. Please refer to http://www.livemint.com/2011/04/24214254/Dejargoned–Capital-Gain-Acc.html

Hope you will find these articles useful

Reply

RAKESH KUMAR JAIN April 7, 2012 at 1:14 PM

Sorry, in my previous post I mentioned “I have 2 queries” but actually I had 4 queries finally.

Reply

Sue Shah April 12, 2012 at 11:53 AM

I would like to know if you invest 50 lacs to avoid capital gain tax…will USA recognize this investment & will free you from Capital gain tax? Thanks in advance for your answer.
Or USA reuires you to pay capital gain tax reagardless. IS there any way you can avoid capital gain tax legally in US. after selling property in INdia?

Reply

Manshu April 12, 2012 at 5:07 PM

I’m sorry but I’m not knowledgeable enough to answer that.

Reply

Jitendra P.S.Solanki April 13, 2012 at 10:16 AM

Sue,

The capital gains tax scheme is only for property sold in India.

In US, the income tax laws for any income earned abroad will apply which you will have to clerify in US itself.

Reply

sandeep butaney April 13, 2012 at 1:59 AM

Dear Sir,

I require your genuine help now.I had purchased a property in 2004 for Rs.400000 (Rupees Four Lacs Only) and have sold the same on 08/03/2012 for Rs.725000 (Rupees Seven Lacs Twenty Five thousand Only). I was informed that if I keep the same with BOI under their Capital gain tax scheme for five years and once the period is over I would be able to utilise the money as it would be free from tax.

Please advice.

Sandeep Butaney
9821207228

Reply

Jitendra P.S.Solanki April 13, 2012 at 10:12 AM

Dear Sandeep,

Capital Gain Scheme Bonds are available only through REC & NHAI as of now.Even NABARD issue these bonds.No banks issue any capital gains bonds for tax exemption.

Reply

Umesh April 13, 2012 at 5:29 PM

Hey Sandeep
Why you want to deposit money in Capital gain tax bonds, locking money for 3 years, just earning 6% per annum interest, which is taxable as well. Just to save Long Term Capital Gain Tax (LTCG Tax) on a property you bought in 2004 (don’t know in 2003-04 or 2004-05) for Rs 4,25,000 and sold in 2011-12 for 8,00,000 (a span of 7-8 years).

Why don’t you just do some homework yourself. Just do some googling and calculate indexation cost of the property and so calculate LTCG, pay tax (subject to your other income) and relax and invest the money as you wish.

Even a 3 year FD @9% or more per annum compounding quarterly of a nationalised bank will earn you more even after paying LTCG Tax and taxes on interest income than depositing in Capital Bonds and saving tax on LTCG.

I hope you got my point. So do some calculations yourself and get benefit.

Reply

RAKESH KUMAR JAIN April 14, 2012 at 9:38 PM

I am a bit confused about the following. Kindly suggest:

1. It seems for 54EC investment the LTCG money should not be kept in Capital Gain Account. As per article at URL http://www.livemint.com/2011/04/24214254/Dejargoned–Capital-Gain-Acc.html :

The CGS account can be opened with a designated nationalized bank. It applies to all assessees eligible for exemption under sections 54, 54B, 54D, 54F or 54G of the Income-tax Act, 1961.

Does it mean that till money is invested 54EC Bonds, it can be kept in normal bank account and must not be kept in Capital Gain Account?

2. If LTCG is more than 50L can one buy 54EC Bonds in same FY from two or more companies to invest full LTCG in bonds to save tax as the limit of investment is 50L in one company?

Thanking you. Best regards, RAKESH

Reply

Umesh April 15, 2012 at 2:59 PM

Hi Rakesh

As already stated:

“There are so many complexities with ifs and buts in our tax laws that it is difficult for a common person a take a clear cut action. As rightly said by Manshu you should consult a practicing CA on this issue.”

Now you are asking these ifs and buts. Only a CA/tax expert can answer your questions. We people here are no experts (may be an expert appears to answer your query) and are here to try to show the way. I do not know whether you have already gained this LTCG or you want to get all these information before hand for a future LTCG.

If you have already made an LTCG then you should hurry up as all the actions to save tax are time bound and you have to pay taxes if you do not take any action to save tax within that time limit.

And if you are asking for future LTCG, then you can put your question in a tax/CA forum/blog.

But my sincere advice to you is to consult a practising CA/tax expert as amount involved is substantial and even a small mistake can cost you dearly.

As all the details about LTCG are not known, do some homework, calculate the tax on LTCG yourself, pay tax on it and invest after tax amount in an high yield investment. We people just want to avoid and save tax by some means. But sometimes it is better otherwise, pay tax and invest in high return investments than investing in low yield tax returns to save tax.

One question, why you do not want to invest in a house property to save tax on LTCG.

Reply

Jitendra P.S.Solanki April 15, 2012 at 5:54 PM

Dear Rakesh,

Til l the money is not utilized for investing in Sec54EC bonds r property, the money if deposited in any savings bank account will be subject to tax.However, if you deposit the amount in capital gain scheme, you will not have to pay any tax till you utilized it for investing.
The limit 50L applies to a financial year and in various court cases the limit has been upheld.

This will clear your doubt.

http://www.dnaindia.com/analysis/comment_beware-the-haze-cap-54ec-investments-at-rs50-lakh_1674267

Reply

RAKESH KUMAR JAIN April 14, 2012 at 9:42 PM

One more query. Where can I find Cost Inflation Index for FY 2012-13?

Reply

RAKESH KUMAR JAIN April 15, 2012 at 5:00 PM

Dear Umesh,

Thanks for your reply.

Yes, I am trying to collect information for future (not very far future). As you suggest, I was collecting information & become a bit knowledgeable before I meet CA. I have also done some calculations & reached to conclusion that investing in bonds will save me some money though it would have been easier to pay tax on LTCG & forget it. I do not want to invest in house as maintaing it, chasing tenants is troublesome some times. I have done study on net & it seems, now I know enough & rest will be told/confirmed by CA.

Thanking you for your help. Best regards, RAKESH

Reply

Umesh April 15, 2012 at 5:29 PM

Hi Rakesh

If you can, then delay or plan the transfer till October, better till first week or till 10th, as then you can time your saving on tax by spreading in 2 fiscal years and your total saving will be 1 crore instead of 50 lakhs but remember to invest other 50 lakhs in due time. Why I am saying till 10th of October, as you will get enough time in April 2013 to invest.

It is my pleasure, if I helped you in any way.

Reply

Umesh April 15, 2012 at 5:03 PM

Hi Rakesh

I think you are right, CGS account is not meant for those who wish to invest in bonds. As for bonds, one has to invest within 6 months from the date of transfer of the asset(s) and the money can be kept in your bank account. However, get it confirmed. But please note that the interest earned on the amount will be subject to tax and TDS and will be included in your total income.

Actually I posted that link of livemint to point out that any income earned from the CGS account, if deposited by you in CGS (as replied by Jitendra, your previous query) will be taxable (as you was asking about tax on interest on deposit in SB account). I am sorry if it made a confusion.

The limit of 50 lakhs is for a fiscal year and not for the bond of a company. It is only the timing by which you can avail this limit twice, spreading in 2 fiscal years (total 1 crore), as stated by Ramesh in comments above and in onemint first article.

I understand that you have gone through various comments posted above before you posted your query for the first time to answer. Please read the comments posted once again.

Reply

Umesh April 15, 2012 at 5:08 PM

As far as indexation for 2012-13 is concerned I don’t think it has been notified so far. The link http://taxguru.in/files/download-cost-inflation-indexed-cost-calculator-excel-format.html says it will be announced somewhere in August 2012

Reply

RAKESH KUMAR JAIN April 15, 2012 at 5:48 PM

Dear Umesh,

Thanks for your comments. I read about the timing of sale & investment in Bonds. But I was not 100% sure that limit 50L applied to fiscal year & not for bonds from a company only. Anyway, now I am not able to postpone the deal & it will certainly be much before October so I have no option but to pay tax. As CII for FY 2012-13 will be declared in August this year & I have to file return by July next year, there will be no problem in calculating tax.

Thanks once agai. Best regards, RAKESH

Reply

Umesh April 16, 2012 at 2:03 PM

Hi Jitendra

Thanks for the link you posted about various tribunal and other judgements on claiming 54EC bonds exemption in 2 fiscal years.

However there was no mention in the link that the interest income of CGS is not taxable. Will you please provide a link to substantiate this opinion.

Reply

Umesh April 16, 2012 at 2:12 PM

Hi friends

Yesterday evening I came across a very detailed article on Capital Gains in the blog by Bemoneyaware, a regular contributor to comments in OneMint on various financial topics.

Those interested may go through the link
http://www.bemoneyaware.com/blog/capital-gain/

Reply

RAKESH KUMAR JAIN April 16, 2012 at 8:52 PM

Thanks for link: http://www.bemoneyaware.com/blog/capital-gain/.

One important information provided in this article is that earlier 54EC Bonds were issued by NABARD, NHAI, NHB, REC and SIDB but from April 2006, only bonds of NHAI and REC will be available. I found the similar information on link: http://www.financialexpress.com/news/54ec-bonds-offer-attractive-returns/133927/

Reply

Ramakrishna Reddy April 20, 2012 at 11:34 AM

Sir,
I will have an indexed capital gain of Rs.5 lacs by selling my flat @ 20 lacs. (Indexed purchase price is 15 lacs). My query is to save tax, I have to invest the capital gain in purchase or construct the house. With 5 lacs investment it is not possible to purchase or construct the house but I can only purchase a plot at a city outskirt. Can I save the Tax by investing Rs.5 lacs in purchasing a plot and take housing loan for constructing the house in 3 years? Because I don’t want to use a single rupee of indexed purchase price of 15 lacs on new house.

Kindly reply
Ramakrishna Reddy

Reply

Jitendra P.S.Solanki April 28, 2012 at 6:23 AM

Ramakrishnan,

The tax provision is not available for buying a land.You should buy or construct a property within the stipulated time. It will be more wise to invest in bonds if you want to save tax.

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Garima April 27, 2012 at 6:29 PM

These capital gains we consider only from the sale of property or even a sale of equity stake would be considered as capital gains. Please let me know.

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Jitendra P.S.Solanki April 28, 2012 at 6:20 AM

Garima,

These capital gains bonds are aviailable only for property.In equity long terms are tax free hence you do not require any provision for such bonds.

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Shiv Kukreja April 28, 2012 at 1:15 PM

Hi Manshu and Hi Jitendra

Nabard and two other institutions – NHB and SIDBI – are no longer allowed to issue 54EC Capital Gain Bonds with effect from 1st April, 2006. Only REC and NHAI can issue these Capital Gain Bonds.

Source: http://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2008itact/dtcdiv1_p494B.htm

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Manshu April 28, 2012 at 6:15 PM

Thanks Shiv.

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S K SHARMA May 3, 2012 at 5:10 PM

Dear Sir, This is about 54EC Capital Gains Bonds.
I sold a house on 30th April 2011. The 6 months period is upto 30 Oct 2011 for me to invest in Capital Gains Bonds. I issued a cheque for the amount dated 30 Oct 2011 and deposited the same with the authorised Bank Branch HDFC Bank on Oct 31, 2011. My cheque was pertaining to PNB. HDFC Bank sent the cheque in clearing on Nov 1st, 2011 and my account with PNB was debited on Nov 2, 2011. The collecting Bank HDFC Bank received the cleared funds on Nov 3, 2011 and accordingly, HDFC Bank intimated the date of realisation as Nov 3, 2011.
In the above case, what will be deemed date of allotment ? Will it be Oct 31, 2011 or Nov 30, 2011 ? And Interest on Bonds will be paid to me from Nov 3, 2011 or from Oct 31, 2011?

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Jitendra P.S.Solanki May 4, 2012 at 10:59 AM

Mr. Sharma,

As per NHAI webiste the deemed date of allotment i s” Last day of each month for application money cleared and credited in NHAI’s collection account” . Hence its Nov 3 2011 as date of allotment.

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Shiv Kukreja May 18, 2012 at 8:07 PM

Hi… I think the Deemed Date of Allotment here would be November 30th, 2011. I’m not sure whether the investment was successfully done within the specified period of 6 months or not because the form was submitted on October 31st, the cheque got cleared on November 2nd and the Deemed Date of Allotment is November 30th. I’m sure the date of the cheque, October 30th, is irrelevant here.

I’m pasting here a link which has details of a I-T tribunal case. This case looks like one of the closest to the above situation. I hope you get the due tax deduction.

http://www.taxmann.com/TaxmannFlashes/Articles/taxmann_com(ART)18-2-12-DTL-18(240).htm?aa=

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Shobha May 18, 2012 at 12:58 PM

Hello sir/madam,

my name is shobha. i am in bangalore. i want to invest in NHAI 54EC Capital Gain Bonds.
where shall i contact? whom do i consult? please suggest me.
thanking you
shobha

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Shiv Kukreja May 18, 2012 at 7:19 PM

Hi Shobha

You can download the application form online from the below pasted link. Just attach the Investment Cheque and self-attested copies of your PAN card & Address Proof along with the duly filled form and submit it at any of the bank branches of IDBI Bank or Union Bank of India anywhere in India. Thats it, you are done!

https://www.sbicapsec.com/Bonds.aspx

For more info or to invest in REC or NHAI Capital Gain Bonds (Tax Saving Bonds u/s 54 EC), Call/SMS 9811797407 (Gurgaon, Delhi or Noida) or mail us at ojascap@gmail.com

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Arun Kumar May 20, 2012 at 10:00 AM

Can the capital gains amount arising from sale of housing property be split between Capital gains Bonds (upto a max of Rs. 50 lakhs in a financial year) and investment in residential property and still gain exemption from capital gains tax?

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Jitendra P.S.Solanki May 21, 2012 at 10:26 AM

Arun,

Yes you can split the amount in these two options.

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Murali May 22, 2012 at 2:32 PM

Myself and my brother jointly held a residential property which we sold recently. The sale proceeds were used for acquiring another residential property again in joint names. Both of us already have seperate residential properties individually. Please answer whether the investment in new residential property in joint name qualifies for capital gains tax exemption.
Thanks in advance
Murali

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PRADEEP RANJAN TRIPATHI May 23, 2012 at 3:00 PM

IS PREMATURE WITHDRAL FROM CAPITAL GAIN BONDS POSSIBLE

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Shiv Kukreja May 23, 2012 at 4:24 PM

No, it is not possible.

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N walia June 26, 2012 at 3:41 PM

Can income tax on long term capital gainearned by self be saved if theamount earned is invested in property in the joint name of self and wife?

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Shiv Kukreja June 27, 2012 at 11:26 AM

Yes, you can save capital gain tax this way but the exemption will be limited to the amount invested as one’s share in the cost of the new joint property.

Example:
Capital Gain earned in the sold property = Rs. 40 lakhs
Cost of the new joint property = Rs. 60 lakhs
Proportion of amount invested in the new joint property = 50:50
Eligible exemption = Rs. 30 lakhs (Rs. 60 lakhs * 50%)
Taxable Capital Gain = Rs. 10 lakhs (Rs. 40 lakhs – Rs. 30 lakhs)

If the whole of the capital gain is invested as one’s share in the new property, there will be no capital gain tax to be paid.

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Sunny July 2, 2012 at 8:22 AM

My dad will be selling my grandfathers house for 30lac and do three equal shares amongst his sister n brother, so on a share of 10 lac can he gift it to me as I have a home loan already running and can pay it off, what are the other options as my dad doesn’t have any means of income he wanted to live on the interest, one last thing since the sale amt of 30lac would first come into his a/c and later he will split hope we shouldn’t worry about tax on entire amt

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Prithvish Bose July 4, 2012 at 4:20 PM

I am interested in buying a few lakhs worth of these bonds. Kindly let me have the contact details of a few agents in Kolkata.

Prithvish bose

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RAMAN August 8, 2012 at 2:32 PM

I am planning to sell my flat now i.e. Aug 2012 at around Rs.65 lacs. I bought the same in Oct 2000 i.e. under construction and got possession in March 2002 at Mumbai suburbs. What will be capital gains amount and I plan to move to a rental flat. What is the option to save long term capital gain tax ? If I invest in REC bonds, there is a lock in period of 3 years, hence after 3 years ie after maturity, whether this amount will be taxable ? Or do I have any other option to earn more interest ? Kindly clarify details.

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RAKESH KUMAR JAIN August 8, 2012 at 8:38 PM

As far as I know, there will be no tax on maturity amount of bonds. As CII has not been released as yet for FY 2012-13 (at least I could not find CII for FY 2012-13 … if some one knows kindly let me know it), it is not possible to calculate LTCG as of todayfor sale in FY 2012-13. It may be
beneficial to sell after October 2012 (instead of Aug 2012) if possible to be able to split LTCG in 2 FY if LTCG is > 50L as one can invest maximum 50L in bonds in a FY but can invest up to 1 Cr in two consecutive FY (as per my understanding). Best wishes, RAKESH

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Umesh August 8, 2012 at 8:46 PM

Hi Raman

You have not mentioned the cost of acquisition of the flat so it is not possible to calculate LTCG and hence the tax on this deal.

I hope you have read the comments posted above. If not go through once and you will get the answer to your queries.

The best option to save LTCG Tax is to invest the LTCG in a residential property itself. If you do not want to invest in residential property, you are left with few options like depositing in bonds etc as mentioned in the article itself. These bonds have a lock in period and give very little return (in comparison to other instruments) and also these returns are taxable, that further reduces the ultimate yield.

Sometime it is better to pay tax on LTCG and invest the after tax amount in high yield instruments. So do some googling and some homework yourself and choose the best option yourself (as suggested in comments above).

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RAKESH KUMAR JAIN August 23, 2012 at 10:13 PM

Today I read an article on 54EC Bonds which confused me completely about 54EC Bonds. It mentions (towards end of article) that maturity amount (which must be same as investment amount) of these bonds is also taxable in addition to the interest paid during investment period. I think this is not correct. If this is true then what is the use of these bonds? Kindly suggest. The URL for the article is:

http://www.thefinapolis.com/files/08-HUM-TUM-1st-AUG.pdf

I guess this statement in article is not correct? Kindly reply ASAP. Thanking you. Best regards, RAKESH

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Shiv Kukreja August 24, 2012 at 12:21 AM

Hi Mr. Rakesh… “Interest received from the REC bonds is fully taxable. Similarly the payments received on maturity of the REC bonds are also fully taxable”. The 2nd part of this statement is not correct, please ignore it. Only the interest payments are taxable and not the principal amount.

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Shaikh M Taher August 28, 2012 at 1:23 PM

Hi, I want to invest 1500000/-Rs in 54EC bonds, as per 6% intrest rate my interest on whole amount will be 90000/-Rs so at what rate interest will be taxed ?
Secondly,After completing 3 years locking period ,can i utilise this amount for any purpose or do i have pay any other tax on it?Pl guide.
Tks

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Shiv Kukreja August 28, 2012 at 5:32 PM

Hi… Rs. 90000 interest income will be considered your “Income from Other Sources” and will be taxed as per your tax slab.

After 3 years of lock-in period, you are free to use Rs. 15 lakhs for any purpose you like and there will be no additional tax on it.

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samrat September 6, 2012 at 6:15 AM

Hi Everyone,
We are selling our primary residential house constructed in 1975 for INR 1Crore. We dont want to buy any more property.
Cost of the property construction in the Year 1975 was INR 5 lakhs.
Like to Save Long Term Capital gain Tax.

What will be our approximate Long Term Capital Gain Tax?
Should we deposit the Bank Check( Sale amount) in to a new Bank Savings Account or to an old Existing Bank Savings account ?
How much time from the sale date do we have inorder to buy Section 54EC Bonds (NHAI bonds) to save Long Term Capital Gain Tax ?

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RAKESH KUMAR JAIN September 7, 2012 at 9:53 AM

I sold my house in April 2012 & deposited the cheque to my SB A/C & in couple of days invested in 54EC Bonds of REC. If the LTCG is more than 50L then best time to sell the property is later than October because you must invest LTCG in Bonds within 6 months & you can not invest more than 50L in a Financial Year but can invest upto 1C in two FY years keeping the restriction in mind that whole LTCG must be invested within 6 months of sale. This is my understanding but best is to check with somebody more knowledgable. Hope it helps.

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Rohit Shah September 19, 2012 at 11:19 PM

Hi. I sold a part of my Ancestral Industrial land for Rs. 50,00,000.

1). Can i re-invest that money in buying some property (Preferably Residential).
2). Can i pay tax on half of the amount and can i buy long term bonds for the other half.
3). In bonds which company should i go with REC, NHAI or NABARD.

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Rajesh September 24, 2012 at 1:26 PM

Hello,

my query is about capital gains ..

we have a property and bought in 1995(land + ground floor building) Later in 2004 we constructed 1st floor and did some alternation to the ground floor as well. so in this case how the indexation will be applied to derive the actual captial gain.,

also if i invest in capital gain bond what will be rate of interest and do we have any workings/excel tool available to compute the interest earned.

thanks.

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rajkhosla September 26, 2012 at 10:45 PM

If I put money into the rural bonds to avoid capital gains and withdraw it immediately as my husband’s name was not included . Can I withdraw it and put it again. You get a 6 month window and that window has not expired

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Mohan Srinivasan October 31, 2012 at 9:47 AM

My mother-in-law is the 54EC Bond holder and unfortunately expired on 8th September 2012. My wife is the registered nominee for the above bond which is due for maturity by 31-3-2013. Pl advice me thro, mail what are all the necessary action to be taken at this juncture. Expecting your reply mail at the earliest. Thanking you.

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pratap barua February 1, 2013 at 7:08 PM

My sister sold a residential independent house for 1.50 crore in novemebr 2012. She has alreday deposited 50 lakh in REC bonds to save capital gain tax. Can she deposit another 50 lakh in April 2013 as it will be within 6 months of the sale? Kindly advise.
Our accountant says that it is a risk as it may not be allowed. But I see in the internet that some people have said that it can be done. What is the actual position.

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Nitin August 16, 2013 at 8:33 AM

My father wanted to purchase capital gain bonds. But unfortunately he died. All his finance transactions and accounts are joint with my mother.Please advise if the investment now has to be done entirely in my mothers name for the full amount desired by my father or otherwise. Thanks in advance for your valuable advise.

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Shiv Kukreja August 18, 2013 at 7:50 PM

Hi Nitin,
Yes, in this case, your mother would be required to do the necessary investments.

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Nitin August 19, 2013 at 7:59 AM

Thanks Mr.Shiv for your advise.

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NARESH KUMAR AGGARWAL October 14, 2013 at 11:48 AM

I have capital gain & would like to save the Tax through these bonds my query is that since the property sold is in my name but I have to purchase these Jointly with my sons, be the first holder me. Is ther any problem on the point of saving Tax u/s 54EC.

Please carify

Naresh Kr Aggarwal

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NARESH KUMAR AGGARWAL October 14, 2013 at 11:58 AM

I have to avail capital gain bonds taxs . My query is that since the property sold is in my individual name can I invest along with my sons in Tax savings bonds . I will be the first applicant. Can I save the Tax u/s 54EC.

Naresh Kr Aggarwal

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devang h shah April 16, 2014 at 1:00 PM

i have invested rs. 8 lacs in rec bond on 07.04.2014 , the amount received on 06.04.2017 i.e. maturity of the bond is taxable or not?

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devang h shah April 16, 2014 at 1:03 PM

i have invested rs. 8 lacs ( long term gain amount ) in rec bond on 2014 , the amount received on 2017 i.e. maturity of the bond is taxable or not?

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Shiv Kukreja April 19, 2014 at 1:21 PM

Hi Devang,
Your investment amount will not be taxed on maturity, only the interest you are going to get every year will be taxed.

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rakesh kumar jain April 19, 2014 at 9:58 AM

I understand that the maturity amount of 54EC bonds is not taxable but
the annual interest earned on these bonds is taxable?

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Shiv Kukreja April 19, 2014 at 1:21 PM

Yes, that’s right.

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Anand January 10, 2015 at 1:07 AM

Is Foreign Proof of address acceptable for buying the 54EC bonds?
Do I have to route the buying of these bonds through the PIS A/C?

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Naresh June 22, 2015 at 12:28 PM

How to know the Brokers Name & Code, Sub Broker Code?

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Shiv Kukreja June 22, 2015 at 10:59 PM

Hi Naresh,
If you are investing through a broker, the broker would let you know the details.

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Swati November 5, 2015 at 10:00 PM

Pls confirm in case we can cancel ya break the bond before 3 yrs… what is the procedure as its an emergency in my family.

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Tarachand March 8, 2016 at 9:05 PM

Rec – bond

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