The Positive aspects that come up on the sale of a Lengthy Time period Capital Asset are generally known as Lengthy Time period Capital Positive aspects and Capital Positive aspects Tax is levied on such positive aspects. Nevertheless, such tax will be saved if this quantity is invested in Capital Positive aspects Bonds specified below Part 54EC inside 6 months from the date of sale of the earlier asset.
- Really helpful Learn: Exemption from Capital Positive aspects
It ought to nonetheless be famous that the exemption from Capital Positive aspects is simply obtainable in case the asset bought is Land or Constructing (whether or not Residential or Business or in any other case) which was held for greater than 2 years. If the Land/Constructing that has been bought was held for lower than 2 years, it could be labeled as a Brief Time period Capital Asset and tax can be levied on such belongings as per the relevant Earnings Tax Slab Charges.
- Really helpful Learn: Present Earnings Tax Slab Charges
Capital Acquire Bonds by NHAI & REC
These Capital Acquire Bonds which assist in saving tax can solely be issued by the Nationwide Freeway Authority of India (NHAI) or the Rural Electrification Company of India (REC).
The Curiosity Charge on the Capital Positive aspects Bonds is 5.75%. The Curiosity @ 5.75% is payable yearly by each NHAI in addition to REC. Earlier than 1st April 2018 – the Curiosity Charge was 5.25% however w.e.f 1st April 2018 – the rate of interest has been elevated to five.75% for all bonds bought after 1st April 2018.
It needs to be famous that the curiosity shouldn’t be tax free and tax on curiosity can be liable to be paid as per the earnings tax slabs of the taxpayer. Thus, solely the quantity invested is exempted from Capital Positive aspects Tax. The Curiosity that’s earned on these bonds is liable to earnings tax.
The Bonds Bonds of NHAI & REC are AAA Rated Bonds indicating that they’re extremely secure and the face worth of every bond is Rs. 10,000. The client should buy a number of bonds of Rs. 10,000 if he intends to speculate extra in these bonds.
Nevertheless the utmost no. of Bonds that may be bought by an investor is 500. Subsequently the utmost funding allowed in these bonds in a yr is restricted to 500 x 10,000 i.e. Rs. 50 Lakhs. The utmost capital positive aspects exemption that may be claimed by a taxpayer below Part 54EC can also be restricted to Rs. 50 Lakhs.
Previous to Funds 2014, this restrict of Rs. 50 Lakhs was for every monetary yr. Nevertheless, Funds 2014 launched an modification and now this restrict of Rs. 50 Lakhs is the mixture most exemption allowed below Part 54EC regardless of the monetary yr. This modification will be defined with the assistance of an instance.
For eg: Mr. A bought a Home in January 2013 and earned a Capital Acquire of Rs. 1 Crore. Now the time restrict for funding below Part 54EC is 6 months i.e. he can make investments until July 2013. Now he invests Rs. 50 Lakhs in Feb 2013 and one other Rs. 50 Lakhs in June 2013 in Capital Positive aspects Saving Bonds.
In such a case, previous to Funds 2014 – the entire capital positive aspects exemption allowed would have been Rs. 1 Crore because the restrict of Rs. 50 Lakhs was for funding in every monetary yr. Nevertheless, after the introduction of Funds 2014, this restrict has been diminished to an combination of Rs. 50 Lakhs regardless of the monetary yr and due to this fact the capital positive aspects exemption allowed within the above talked about instance can be restricted to Rs. 50 Lakhs solely.
Different Options of Capital Acquire Bonds by NHAI & REC
- The Capital Acquire Bonds are non-transferable, non negotiable and can’t be supplied as a safety for any advance or mortgage.
- The Bonds are issued for a interval of 5 years and can’t be bought earlier than 5 years as required by Part 54EC. These Bonds aren’t listed on any inventory trade. (Elevated from 3 years to five years in Funds 2018 and relevant with impact from 1st April 2018)
- On the time of buy of those bonds, the customer is required to submit self-attested copy of the PAN Card, self licensed copy of Tackle Proof of the 1st Applicant and 1 Cancelled Cheque.
- These Capital Acquire Bonds can both be held in bodily kind or demat kind.
- If the quantity has been paid for the acquisition of the bonds, the applying can’t be withdrawn.
- It’s advisable that the traders maintain a photocopy of the submitted utility kind.
Do you have to spend money on Capital Acquire Bonds?
The Curiosity paid on these Capital Acquire Bonds of 5.75% is decrease as in comparison with the Curiosity paid on a Fastened Deposit which is round 7%. Nevertheless, the most important good thing about the investing in these capital achieve bonds shouldn’t be the curiosity earned however the Capital Positive aspects Tax which is being saved.
To assist our readers perceive the good thing about investing in Capital Acquire Bonds, we’ve got performed an evaluation of the profit which might come up to the taxpayer if he invests in Capital Acquire Bonds. The evaluation has been shared under:-
| Particulars | Quantity |
| Quantity of Capital Positive aspects | Rs. 50,00,000 |
| Quantity invested in Capital Acquire Bonds | Rs. 50,00,000 |
| Profit | |
| Tax saved on this Funding @ 20.8% (incl Cess) | Rs. 10,40,000 |
| Curiosity earned in 12 months 1 @ 5.75% | Rs. 2,87,500 |
| Curiosity earned in 12 months 2 @ 5.75% | Rs. 2,87,500 |
| Curiosity earned in 12 months 3 @ 5.75% | Rs. 2,87,500 |
| Curiosity earned in 12 months 4 @ 5.75% | Rs. 2,87,500 |
| Curiosity earned in 12 months 5 @ 5.75% | Rs. 2,87,500 |
| Complete Profit | Rs. 24,77,500 |
| Share Return in 5 years | 49.55% |
| Annualised Return (Easy Curiosity) | 9.91% |
On an Funding of Rs. 50,00,000 the Complete Profit arising on this case is Rs. 24,77,500. In different phrases, this profit is of 49.55% in a interval of 5 years i.e. 9.91% every year (easy curiosity). The compound curiosity can be even decrease.
When you suppose you possibly can generate a return of greater than 9.91% every year for the subsequent 5 years, then it doesn’t make sense to be investing within the Capital Acquire Bonds. Nevertheless, for those who suppose it could be troublesome so that you can generate a return of greater than 9.91% then you must go for these Capital Acquire Bonds.
Learn how to buy Capital Acquire Bonds
These Capital Acquire bonds will be bought both from NHAI/ REC or from authorised brokers of those bonds. There is no such thing as a on-line mechanism of buying these bonds and an individual can be required to bodily go to their workplace and fill within the bodily kind. After buying these bonds – you could both maintain them in bodily kind or demat kind however there is no such thing as a option to buy these bonds on-line.
e-E-book on Capital Positive aspects Exemption
To assist our readers perceive How Capital Positive aspects Tax is levied on Actual Property Transactions and How Tax will be saved on Actual Property Transactions, we’ve got authored a e book which explains in easy phrases with 40+ Examples the Method of Levy of Capital Positive aspects Tax on Actual Property Transactions. The e-book will be bought by means of this hyperlink.
The principle matters lined within the e-book are:-
1. Computation of Capital Positive aspects
2. Tax on sale of Inherited Property
3. Tax on sale of Below-Development Property
4. Sale of Property under Circle Charge/ Stamp Valuation Charge
5. Capital Positive aspects Exemptions on sale of Property
6. TDS on sale of Property
7. Complete Examples