Capital Gain bonds
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Are you looking to sell your property but are worried about paying tax for gains? Don’t sweat. We tell you how to save on taxes on any long-term capital gain.
A long-term capital gain is any revenue that you get from the sale of an asset. The asset could be land, property or even investments. According to the Income Tax Act, you are liable to pay tax for such gains. However, you can reduce the liability of these taxes.
Invest in section 54EC bonds, also commonly known as capital gain bonds, to avail tax deductions in the future. The bonds are issued as per the provisions of the section 54EC of the IT Act.
So what are the bonds that fall in the category? They are bonds offered by Rural Electrification Corporation Ltd (REC), Power Finance Corporation Limited (PFCL) and National Highways Authority of India (NHAI), among others.
Features of tax free bonds
Capital gain bonds are safe, secure and offer a decent rate of interest. Here are some of the primary features of the 54EC bonds.
- Interest: The section 54EC bonds offer an interest rate of 5.75 percent. Interest is earned annually. Interest earned on the bonds is taxable.
- Safe: The capital gain bonds are AAA rated and are secure. They are backed by public sector enterprises, and so the default rate is low.
- Tenure: You can invest in these bonds for five years, which is also the lock-in period.
- Transferability: The 54EC bonds cannot be transferred from one person to another at any point in time.
- Investment limit: You have to invest in a minimum of one bond that is worth Rs. 10,000. The upper limit is 500 bonds, worth Rs. 50 lakh in a year.
Benefits of tax free government bonds
The section 54EC bonds come with a host of advantages. Here are four reasons why you should invest in capital gain bonds:
- Exemption on capital gain: The primary benefit of this product is that it helps you save on taxes on your capital gains. The exemption is for the amount of capital gain or the amount of investment made, whichever is less.
- Assured income: You stand to gain an annual interest of 5.75 percent on your investments. So you can rest assured of your income from your investment in 54EC bonds.
- Ease of access: You can hold 54EC bonds in demat format or physical format.
- Safe investment: Capital gain bonds are backed by the government of India. You can invest in these bonds and not have to worry about returns.
Capital gain bonds come with zero risks of repayment and interest. Your annual income from interest earned on these bonds is guaranteed by the government of India. If you are selling your property and are looking for ways to avoid having to pay taxes, look no further than the 54EC bonds.