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CAPITAL GAIN BONDS

These are bonds in which the profit arising from the sale of a property, any financial asset, or any other capital gain from any asset can be invested. These bonds have a lock-in period of 5 years and one can invest in these bonds up to a maximum amount of Rs. 50 lakhs. Currently, these bonds are being issued by NHAI (National Highway Authority of India), REC (Rural Electrification Corporation Limited), Power Finance Corporation, and some more which are approved by GOI from time to time.

What is the taxation policy applicable to Capital Gain Bonds?

Capital Gain Tax is levied on Capital Gains received from the sale of a long-term capital asset. This tax levied can be saved by the seller if the sale proceeds are further invested in Capital Gain Bonds specified under Section 54EC within 6 months of receipt. The exemption from Capital Gains is possible only if the asset is sold after being held for 3 years or more. In case the asset is sold before 3 years, then it is considered a short-term capital gain and is therefore subject to the applicable taxation slab. The interest earned on Capital Gain Bonds is not subject to tax exemption. The interest earned is treated as part of the annual income and is therefore subject to the taxation slab as applicable to the investor. The interest earned on these bonds is payable annually and the funds are directly credited to the bank account of the investor. Rs. 50 lakh is the aggregate maximum exemption allowed under Section 54EC irrespective of the financial year, as per Budget 2014.

Can Capital Gain Bonds be used as collateral in a loan?

Can I sell these bonds? Capital Gain Bonds are non-transferable and non-negotiable. They cannot be pledged or offered as collateral/security while applying for a loan. No, you cannot sell these bonds. Capital Gain Bonds are issued for 5 years and as per Section 54EC, they cannot be sold before these 5 years. These bonds are not listed on the stock exchanges.

Features

  • Safe and Secure: All Capital Gain Bonds are AAA rated

  • Tenure: Lock-in-period of 5 Years from Deemed Date of Allotment

  • Coupon (%p.a.): 5.00% p.a, payable annually

  • Face Value: Rs. 10,000/- per bond.

  • Minimum Investment: 1 bond of Rs. 10,000/-

  • Maximum Investment: Rs. 50,00,000/- in a financial year (Subject to section 54EC of Income Tax, 1961

  • Taxability: Interest is Taxable and TDS will not be deducted

  • Transferability: It is non-transferable, non-negotiable, and cannot be Offered as a security for any loan or advance

  • Redemption/Maturity: Bonds are automatically redeemed on maturity

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