Mar 2, 2011

54EC Bond - Capital Gain Bonds

Capital Gain Bonds with tax benefits under Sec 54EC of Income Tax Act. The  schemes currently available in the market which offers tax benefits under Sec 54EC are:-Private Placement of REC 54EC Bonds   Rating 'AAA" by CRISIL   

Who can invest? Apart from resident individual, Hindu Undivided Families and non-resident Indians and approved institutions can also invest in these

Availability: These bonds are available on till 31 March. The issuers of the bond have the right to close the issue any time before this date. These bonds
are available on private placement and are currently open to retail investors. The instrument is not listed." You can hold these bonds in both demat and
physical forms.

Where to buy? For Applications write us at

Tenor and redemption: Both the bonds are available for three years.

"With REC bonds, the redemption will happen at par (you get what you invest) at the end of three years from the date of allotment and these are nontransferable bonds. Also, once you submit the application, you cannot withdraw."

The NHAI bond, too, is fully redeemed at par on maturity of three years. These bonds are not only non-transferrable and non-negotiable, you can't
keep them as security against any loan or advance.

Interest rates: Currently, both the bonds are giving an interest rate (coupon rate) of 6%, payable annually. NHAI bonds will pay the interest on
31 March every year. In case of REC, the interest will be paid on 30 June every year.

Investment amount: You can invest a minimum of Rs. 10,000 and a maximum of Rs. 50 lakh. The face value is Rs. 10,000 per bond and you can
buy up to 500 bonds.

Tax: The good thing about these bonds is that no tax is deductible at source on the interest they pay. But the interest earned on these bonds is taxable.
You will need to pay tax on the interest income.

Tax exemption: Exemption under section 54 EC can be claimed only if you have made capital gains. As per the said section, the capital gains have to be invested in the bonds and the deduction its allowed to the extent of the amount invested.
Therefore, if you've made LTCG of, say, Rs. 30 lakh and invested it, the amount will be exempt from tax. But if you invest only a part, say Rs. 10 lakh, you will get an exemption only on Rs. 10 lakh; you will have to pay LTCG tax on the remaining Rs. 20 lakh.
However, to avail the exemption, the investment needs to be made within a specified period from the date of gains. "The investment has to be made within six months of occurrence of LTCG in order to be eligible to claim the exemption benefit under section 54 EC,".
Though you can invest a maximum of Rs. 50 lakh and that too within six months of the transfer of the asset, you can increase your benefit if your LTCG exceeds Rs. 50 lakh, the maximum investible permitted. "Say your LTCG of Rs. 1 crore arises in the month of January, you can invest the maximum amount of Rs. 50 lakh up to 31 March and can invest the remaining Rs. 50 lakh in April, since the limit is for investment per year, and not exemption per year."

Applications should be in multiple of Rs.10000/ strictly or the Banker would refuse the acceptance.
Applications once submitted can not be withdrawn.

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