Buy Bonds of NHAI and REC and save taxes on capital gains-Section 54EC

This relates to an exemption in the case of capital gains arising from the transfer of long-term assets. The exemption is available to all assesses. To avail of section 54EC exemption, you must invest your long-term capital gains (not the sale proceeds), either wholly or in part in a specified instrument, within six months of the transfer of the asset. The exemption is available to the extent of the gains invested or the cost of acquisition of the asset, whichever is less Conditions for claiming exemptions: Long term capital asset: A long term capital asset is transferred by an assessee (who may be an individual, firm, company or any other person) during the previous year. Investment in “specified asset—“ within six months from the date of transfer of the asset, the assessee should invest the whole (or any part of ) capital gain in the long term specified assets. “Long term specified assets” means any bond redeemable after 3 years issued by (a) National Highway Authority of India (NHAI) and (b) Rural Electrification Corporation (REC). Amount of exemption the amount of exemption under section 54EC is as the amount of Capital gains generated on transfer of capital asset; or the amount invested in specified assets as stated above, whichever is lower. Further, the cost of specified assets which is considered for the purpose of section 54EC shall not be eligible for tax rebate u/s 88. These bonds carry a lower rate of interest as compared to other investment options, such as Public Provident Fund, bank fixed deposits and National Savings Certificates, among others. The main reason for this lower rate of interest is that the investor gets the benefit of reducing his income tax liability upon investing in these bonds, if he has long-term capital gains. These bonds are issued for a fixed maturity period of three years. These bonds have been rated as “AAA/Stable” by Credit Rating and Information Services of India (CRISIL). The maximum amount that a person can invest in these bonds (NHAI and REC combined) in any financial year is Rs 50 lakh. If a person has long-term capital gains which have accrued to him after 1 October of any year, and the amount of capital gains exceed Rs 50 lakh, he can split his investment by investing Rs 50 lakh up to 31 March of the following year and the balance on 1 April of that year. The balance amount in this case, however, should not exceed Rs 50 lakh. Joint applications shall also be included for the purposes of this limit. The deemed date of allotment is the last date of the month in which the application is made and the amount is realized by the issuer. These bonds can be held in dematerialized form or in physical form. The bonds can be held under a single name or joint names. The facility for nomination is also available on these bonds. These bonds are non-transferable, non-negotiable and cannot be offered as security for any loan or advance. However, transmission of the bonds to legal heirs in case of death of the bondholder is allowed under the rules. The NHAI bonds carry interest at 6.25 per cent per annum, payable annually on 31 March every year. REC bonds carry interest at 5.75 per cent per annum, payable annually on 30 June every year. The interest earned on these bonds is fully taxable under the head “Income from Other Sources”. No TDS would be deducted from the interest on these bonds. Timely and efficient tax planning go long way in lowering your total taxes by employing and taking advantages of in-built provisions of tax exemptions, deductions, concessions, rebates, reliefs, allowances and other benefits granted by the tax laws so that the incidence of tax is reduced. We at Taxmantra.com have the expertise to guide you in lowering your tax outgo and thus enhancing your total take away.  We at Taxmantra.com provide full year support solving all your tax issues, in addition to filing of your return of income with excellent tax planning. Please join us now in pursuit of simplifying individual taxation! Alok Patnia Founder and Director at Taxmantra.com

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