After NHAI, REC (Rural Electrification Corporation Ltd) too has come up with its fresh issue of Capital Gains Bonds (Series IX) of Rs 1,000 crores.
Any individual, Hindu Undivided Family (HUF), or non-resident Indians (NRIs) can invest in these REC capital gains bonds. The amount invested should be the long term capital gains made by selling residential property held for more than three years or more.
The long term capital gains on sale of residential property (held for more than 3 years) are taxed at 20% with indexation. You would need to invest the long term capital gains made within 6 months of date of sale of the property.
We explain this by an example:
You bought a house in April 2007 for Rs 50 Lakhs and sold it on April 2011 for Rs 1 Crore. This is how the capital gains would be calculated.
The property has been held for more than 3 years and so it qualifies for Long term capital gains.
Next you have to look at Cost of Inflation Index (CII) published by Income Tax Department every Financial Year.
So out of Rs 1 crore that you get out of sale, you would need to invest the entire long term capital gains of Rs 28,76,588 in Capital gains Bond by October 2011 (i.e. within six months of date of sale) to save tax of Rs 5,75,318.
In case you invest only part of the capital gains, the remaining amount would be taxed at 20%.
There is a misconception that the interest earned on capital gains bond is tax free as there is no TDS (Tax Deduction at source) deduction by REC. But unfortunately the truth is the interest earned from capital gains bond is added to your income and taxed at marginal rate of your income tax.
The application form for REC Capital gains bond can be obtained/ submitted at select branches of HDFC Bank, Canara Bank, IDBI Bank, Indusind Bank, ICICI Bank and Axis Bank
If you want to save your long term capital gains tax on sale of residential property u/s 54EC, there are two options:
As far as the investment in capital gains bonds like REC/NHAI is concerned, the interest offered is just 6% and that too taxable. So at times it might make sense to pay long term capital gain tax and invest the rest of amount in higher return investments.
I have written about NHAI capital gains bond here. If you compare both the Capital Gains bond from REC and NHAI, they are same in terms of Risk and Return. The decision on which bond to invest should mainly depend on which bond is easier for you to invest or what you want to support – Building Highways or providing electricity to rural areas :).
You can get more details and detailed prospectus and application form from here.
Everyone hates paying taxes and always are on lookout for Options to Save Tax. However…
Are you worried and confused about Lien amount in SBI? Well you are not alone.…
Get details of latest Sovereign Gold Bond Price, Issue details, taxation and how to invest.…
Download the Excel based Income Tax Calculator India for FY 2020-21 (AY 2021-22). This compares…
Piramal Capital & Housing Finance, has come out with Piramal Capital & Housing Finance Ltd…
IIFL Home Loan, the Housing Finance company from IIFL Group has come out with IIFL…
View Comments
A very good site I was not aware of. Shall access it on regular basis henceforth. Thanks
It has and will continue to add to my knowledge in different fields.
My mother 83 years old , Flat purchased in the financial year 1982-83 for Rs.1,07,000/- and is sold in year 2013-14 for Rs. 40,00,000. what is capital gain and how much tax is to be paid?
1.Cost of Flat : Rs 1,07,000/-
2.Date ofPurchase : 17.8.1982
3.Financial Year 1982-83
The CII for Fy 2013-14 has not been notified yet and so the calculation is according to FY 2012-13. You capital gains would be Rs. 31.63 lakhs and your capital gains tax would be Rs 6.33 Lakhs.