Long-term Capital Gains tax- Yes, you can avoid it

Have you sold any property after 3 years of its purchase or are you planning to do so? Then, you are bound to pay long-term Capital gains tax. The most common advice given to residential property sellers to avoid long-term Capital gains tax is to invest the gains in any residential property within 2 years from the date of sale of the property. The alternative advice given is to use this gains to construct another house within 3 years from the date of sale. However, there is a catch – one can invest this Capital gains only in residential property, and not in commercial ones.

Is there a way out?

In case, you are not keen to re-invest the gains in any residential property, the best way to avoid paying Capital gains tax is to invest the profits from the sale of your property into Capital Gain Bonds India. However, the maximum amount you can invest in these bonds is Rs. 50 lakh.

As of now, 2 Capital gain bonds are open for subscription:

•    Capital Gains bonds of National Highways Authority of India (NHAI)
•    Capital Gains bonds of Rural Electrification Corporation Ltd (RECL)

Yes, the coupon rate (interest rate) might only be 6% per annum. But, doesn’t the benefit of not paying the Capital Gains tax outweigh the low interest rate offered? Also, these bonds are 100% risk-free.

Most of the financial service providers, including scheduled banks, allow you to invest in these Capital Gains bonds India through them. Act smart and channelize your long-term Capital gains into these instruments.