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
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)
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
& Non-Priority Sector Bonds
Email : bonds@rcmcdelhi.com
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.
You may also like:
- IFCI Infrastructure Bonds: Tax Saving Bonds under Section 80 CCF
- The Rupee Symbol, Capital Gains and Stock Valuations
- REC Infrastructure Bonds: Section 80CCF Infra Bonds
- Limitations of the way yields are calculated for tax saving bonds
- Virginity, Capital Gains and Safecredit Review
{ 64 comments… read them below or add one }
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.
So sell around March and then invest in March and April to get the double benefit…am I understanding this correctly? Thanks!
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?
Did you get any response to your question ? I would like to know the answer.
Thanks
Sam
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.
Thanks Ramesh!
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.
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
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.
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?
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
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
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?
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,
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. ?
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?
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.
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 ?
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.
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
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 ….
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 ?
Ashish,
Yes, you can break up your Capital Gains investment in a property and Capital Gains Bond Issued by NABARD or NHAI.
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
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.
my quary
i have sold my fathers property of Rs. 20 Lac after his death with my mother & brother equally, will capital gain charged
Yes,
Capital Gain will be charged after indexation benefit.
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 ?
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
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
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.
For 54EC bonds? That will be when they issue that to you.
yes for 54EC bonds what would be the date of investment?
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?
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/
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.
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
Sorry, in my previous post I mentioned “I have 2 queries” but actually I had 4 queries finally.
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?
I’m sorry but I’m not knowledgeable enough to answer that.
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.
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
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.
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.
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
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.
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
One more query. Where can I find Cost Inflation Index for FY 2012-13?
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
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.
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.
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
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
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.
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/
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/
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
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.
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.
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.
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
Thanks Shiv.
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?
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.