As a substitute of paying long run capital beneficial properties tax on the price of 20 p.c, you possibly can spend money on bonds issued by some choose PSUs equivalent to REC (Rural Electrification Company). This fashion, you can’t solely save capital beneficial properties tax however earn curiosity on it on the similar time.
Should you maintain a property for greater than two years and promote it, the capital beneficial properties are liable to revenue tax.
To save lots of this tax, tax payers, underneath part 54EC of Revenue Tax Act, are entitled to spend money on tax-saving bonds equivalent to these points by REC. Beginning April 1, 2022; NHAI discontinued these bonds whereas REC has launched the brand new sequence of 54EC capital beneficial properties tax.
Tax payers should be conscious that this funding may be made inside six months of promoting the asset that generated the capital beneficial properties. Being AAA-rated, these bonds provide security to buyers.
After promoting these bonds upon completion of 5 years, tax payers are usually not meant to speculate wherever, and the money acquired is tax-free topic to tax on curiosity earned on these bonds.
Illustration: Let’s suppose you’ve got a property of ₹60 lakh which you offered after holding it for greater than two years and the capital beneficial properties accrued on it’s ₹25 lakh since you purchased it for ₹35 lakh. Because you don’t intend to purchase a brand new property instantly, you possibly can’t preserve the cash for greater than six months with out having to pay tax on it on the price of 20 p.c.
So, the opposite possibility is to purchase REC bonds for ₹25 lakh. These bonds will provide curiosity yearly, save your capital beneficial properties tax and your capital will probably be extraordinarily protected in these bonds.
Are there some shortcomings too?
Investing in these bonds is taken into account protected and rational, but it surely has some shortcomings as nicely. Pattern this: the curiosity supplied on these bonds is just 5 p.c which is decrease than even inflation that hovers between 6.5 to 7 p.c as of now.
The utmost restrict of funding is ₹50 lakh in a single monetary 12 months. So, in case whole capital beneficial properties earned is ₹60 lakh, you may be speculated to pay tax on the remaining ₹10 lakh.
On the highest of it, the curiosity is given yearly, thus depriving the buyers of the facility of compounding. Additionally, curiosity paid is taxable. which additional reduces the online curiosity acquired.
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Supply: Live Mint