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.
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.
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 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.
Sorry, in my previous post I mentioned “I have 2 queries” but actually I had 4 queries finally.
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
yes for 54EC bonds what would be the date of investment?
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.
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
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.
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.
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.
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
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.
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 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,
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 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
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 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?
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.
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.
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
Did you get an answer for this question? I am in the same boat.
Thanks