Property is an attractive investment option for long term gains. But you must pay the taxes.

If you’re selling property less than three years after acquisition, you are liable for short-term Capital Gains Tax. Selling after three years of acquisition, you’ll be liable for Long-term Capital Gains Tax. However, the Income Tax Act provides the following exemptions for LTCG Tax:

• Capital Gain Bonds in India:

You can invest a total of Rs. 50 lakh in the bonds of NHAI and REC to claim exemption under Section 54 EC. Investing in these gets you a 6% return. And, instead of your gains, only the interest earned on them is taxable at maturity.

•Investing in another property from the gains of the sale:

1.You must invest the gains from the property sale in a residential property within 2 years from sale.

2. Or, you can construct another house within a 3-year period, counting from 1 year before sale, and the gains should be invested in it.

The point to remember is that you should not own any house other than the one you are investing in to claim exemption under Section 54/54F.

•Capital Gain Account Scheme:

If you wouldn’t invest in Capital Gain Bonds or property, then you can temporarily put your funds in a CGAS account for up to 3 years and withdraw only for the purpose of property investment.

So, no more worrying about the taxman when you sell your property henceforth.

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Buying or selling land, house, commercial property etc. makes you liable for Capital Gains Tax.

You are exempt from this tax when you invest all your capital gains into a Capital Gain Bond. This exemption comes under Section 54 EC of the Income Tax Act.

Keep in mind though that you must invest in Capital Gain Bonds (India) within 6 months of your transaction, in order to be eligible for tax exemption.

The interest from Capital Gain Bonds India is taxable.

The interest that would come from the Capital Gain Tax Bond, that is taxable only, and not the entire transaction that caused the Capital Gain in the first place. This means that you saved substantially on Capital Gains Tax when you re-invested the gains in Capital Gain Bonds.

Capital Gain Bonds eligible under Section 54 EC are:

•    Rural Electrification Corporation Ltd. (RECL)

•    National Highways Authority of India (NHAI)

You can invest a maximum of Rs. 50 Lakhs in one or both of them in a financial year.

Each of these has the same features:

1.    Rate of Interest 6%, which is payable annually.

2.    Minimum Investment is Rs. 10,000/-.

3.    They are non-transferable Bonds.

4.    They are locked-in for 3 years. They are automatically redeemed after this lock-in period.

5.    They can be held in Demat or Physical form.

Good luck gaining on your capital with Capital Gain Bonds.

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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.

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