Captial Gain Bonds in tamil | 54EC Bonds | How to calculate Tax on sale of property | LTCG

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Captial Gain Bonds in tamil | 54EC Bonds | How to calculate Tax on sale of property | LTCG
Section 54EC- Deduction on LTCG Through Capital Gain Bonds
Capital gain bonds or 54EC bonds are the fixed income instruments that provide capital gains tax exemption under section 54EC to the investors. The tax liability on long-term capital gains from sale of immovable property can be reduced by purchasing 54EC bonds.
The owner of the bonds are the debtholders or creditors of the issuer. These bonds are issued by infrastructure companies that are backed by the government. Hence, the risk factor gets mitigated by buying such bonds. The capital gain bonds are redeemable before maturity. One cannot sell these bonds as they are not listed in the stock exchange. The interest is reduced to 5% p.a. from 6% p.a. and are fully taxable in your hands.
Bonds eligible for exemption under section 54EC of the Income Tax Act
Rural Electrification Corporation Limited or REC bonds,
Power Finance Corporation Limited or PFC bonds,
Indian Railway Finance Corporation Limited or IRFC bonds.
Key facts to avail the LTCG exemption by investment in capital gain bonds
To avail the tax-exemption the investment must be made within 6 months of the date of sale of immovable property.
Such investment can be redeemed only after 5 years. Before april 2018 the bonds could be redeemed within 3 years.
The exemption on investment is allowed only against long term capital gains on sale of immovable property (i.e. sale of land or building).
The exemption is available up to a maximum amount of Rs 50 lakh
How to calculate the tax exemption by investment in tax saving bonds
Assuming that an immovable property is sold at Rs. 70 lakh after a long term period of 42 months from the date of acquisition. The indexed cost of acquisition is 46 lakh and indexed cost of improvement is Rs. 10 lakh. Calculate the capital gain that is taxable after claiming exemption in below two cases:
i. Rs. 14 lakh invested in REC bonds within 6 months
ii. Rs. 8 lakh invested in NHAI bonds within 6 months
I. Rs. 14 lakh invested in REC bonds within 6 months
Particulars Amount (Rs.)
Sale consideration 70 lakh
Less: Indexed cost of acquisition 46 lakh
Less: Indexed cost of improvement 10 lakh
Long-term capital gain 14 lakh
Less: Investment in REC bonds 14 lakh
Taxable long-term capital gain Nil
II. Rs. 8 lakh invested in NHAI bonds within 6 months
Particulars Amount (Rs.)
Sale consideration 70 lakh
Less: Indexed cost of acquisition 46 lakh
Less: Indexed cost of improvement 10 lakh
Long-term capital gain 14 lakh
Less: Investment in REC bonds 8 lakh
Taxable long-term capital gain 6 lakh
In case if the capital gain bonds are converted into cash before the period of maturity, then the amount so invested on which tax exemption was claimed, shall be taxable as long-term capital gain in the year of conversion.
For example, in above case if the bonds are redeemed before the maturity date, say in the financial year 2020-21, then Rs. 8 lakh shall be taxable as long-term capital gain in the financial year 2020-21.
How to make investment in 54EC bonds
These bonds are not listed in the stock exchange. Hence you can buy them by the issuer directly either in a demat form or a physical form.
IRFC bondRural Electrification Corporation
Power Finance Corporation
Indian Railways Finance Corporation