Long-Term Capital Assets (LTCA) are subject to special tax rates. Immovable assets like land and buildings attract a tax rate of 20%, which includes indexation. Yes, NRI is eligible to claim exemption u/s 54EC of the Income Tax Act, provided that the land or building sold is situated in India.
Are 54ec bonds tax-free?
The lower interest rates on these bonds, compared to the higher rates in the general bond market, are offset by the tax savings on capital gains, making them an appealing option for tax-savvy investors. If you’re thinking about selling a long-term capital asset like land or a building to make some money, it might be a joyful decision. However, it’s crucial to understand that this joy is accompanied by the responsibility of paying capital gains tax imposed by the income tax department. So, whether it’s land, a building, or both that you’re selling, you’ll need to calculate the capital gains and pay the applicable tax.
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Eligibility criteria include 5-year lock-in period for investments not exceeding INR 50 lakhs, and redemption allowed after 5 years. Bonds eligible for exemption include REC, NHAI, PFC, and IRFC bonds. 54EC bonds are popular investment instruments as investing in 54EC bonds allows investors to claim tax deductions on long-term capital gains. The Indian Financial market can be said to be in its nascent stage compared to the equity share market.
Expert Assisted Income Tax Filing for Capital Gains
These capital gain bonds are issued by selected entities such as the Rural Electricity Corporation (REC) or the National Highways Authority of India (NHAI). The maturity period for these bonds is https://www.simple-accounting.org/ fixed at three years, and they are non-transferable. Individuals are typically allowed to invest in these bonds within a specific period, usually six months from the date of the asset transfer.
What Are the Benefits of Section 54EC Bonds?
The minimum amount to invest is Rs 10,000 and maximum Rs 50 lakhs. There is a negative perception about perpetual bonds after the YES Bank fiasco. The risk factors that got highlighted after the YES Bank AT1 write-off have always existed, but came into action https://www.intuit-payroll.org/what-is-the-net-book-value-of-a-noncurrent-asset/ and hit investors. Having said that, there are front line banks such as SBI, HDFC Bank and the like that are worth investing in. However, investors have to pay tax on the interest as per their own applicable slab rate under interest income for that year.
Attention Investor, Prevent unauthorised transactions in your account. Receive information of your transactions directly from Stock Exchange / Depositories on your mobile/email at the end of the day. In case of the untimely death of a bondholder, the issuing entity shall recognise the administrator of the deceased.
As against this, if you go for option (b), you pay tax on capital gains, which is taxable at 20 per cent if we ignore surcharge and cess, for simplicity. Subsequent to paying the tax of ₹10 lakh, what remains with you for investment is ₹40 lakh. A popular option for saving long-term capital gains tax on sale of property is section 54EC bonds. Investing in these bonds can help you make gains of up to ₹50 lakh per financial year from capital gains tax. These bonds carry interest, which is currently at 5 per cent and is taxable. Capital gains exemption under Section 54EC allows taxpayers to avoid tax by investing in specific bonds within 6 months of selling a long-term immovable property.
When an individual sells assets like land, buildings, or other capital properties, they are liable to pay taxes on the gains realized from the sale. However, Section 54 of the Income Tax Act presents an opportunity for individuals to invest their capital gains in specified bonds and enjoy tax exemptions. Including IREDA and HUDCO under this section will offer similar tax benefits, making it an attractive option for investors despite lower interest rates. 54EC bonds, or capital gains bonds, are one of the best way to save long-term capital gain tax. 54EC bonds are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains.
However, interest rates are subject to revision by the respective Companies/Government from time to time. Before we go into further details about reinvesting in 54EC bonds, let’s look at what section 54EC of the Income Tax Act talks about. The lock-in period for 54EC Bonds is 5 years, during which the invested amount cannot be redeemed or transferred.
- The company will consider their legal heir and transfer those bonds in the legal heir’s name.
- Investors can enjoy tax exemptions under section 54EC of the Income Tax by purchasing these bonds.
- The lower interest rates on these bonds, compared to the higher rates in the general bond market, are offset by the tax savings on capital gains, making them an appealing option for tax-savvy investors.
- 54 EC bonds are one of the most popular measures to save tax accrued on long-term capital gains.
- ₹40 lakh, which is the net amount that remains in case of option (b), invested at 4.25 per cent tax-free, grows to ₹49.25 lakh after five years.
Through this, they also become a participant in the bond market, which requires more investors. It can be considered a benefiting situation for both the investor and the economy. Bonds or any form of security clear out definition and meaning is introduced through the primary market. Any entity which requires funds can throw access these bonds for issuance. The lock-in tenure as well the interest rate on these bonds is determined beforehand.
These bonds have a lock-in period of 5 years with interest rates around 5-6% per annum. Investors can compare them with FDs, PPF, and Debt Mutual Funds for returns. Tax implications include exemptions on long-term gains and taxable interest income.
It is important to note that early redemption or sale of bonds before the end of the lock-in period may result in the loss of tax benefits accruing to gains under section 54EC. Individuals should, therefore, carefully consider investment timelines and financial objectives before investing in capital gain bonds. 54 EC bonds are one of the most popular measures to save tax accrued on long-term capital gains. However, it is important that you invest in these bonds within the stipulated time frame to avail the tax benefits. Since these bonds are used to receive exemption on capital gains from sale of an asset held for a long period, you can invest in 54EC bonds if you have received capital gain from selling a property. However, you will not be able to get the tax exemption benefits under section 54EC.