New NHAI bonds for Capital Gains Exemption


Samarth Modi, who I’ve been having an email conversation with over all things investing, let me know recently that there were no capital gains exemption bonds available. You are allowed (under section 53EC) to park your taxable long term capital gains in certain government issued bonds to avoid the tax. Other than stocks and equity mutual funds, all other asset investments are taxed at 20% long term capital gains tax.

The only two bonds you can invest in are issued by Rural Electrification Corporation (REC) and National Highways Authority of India (NHAI). These bonds are locked in for three years and carry interest rates of around 5-6%. (The interest, though, is taxable) Too little, you say? You’re saving 20% on cap gains tax now, which is more than the amount you lose on the interest.

Anyhow, Samarth found in May that there were no more bonds available. Both REC and NHAI had closed their offers of 2007-08, and hadn’t opened new ones. He found that around May 26, NHAI started the next series of bonds, and posted me a mail – so here you go:

NHAI’s 2008-09 bond issue is now open.

All kinds of long term capital gains can be parked here – i.e. real estate, gold, debt funds etc.

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  1. >I have also heard of some deposits offered by PS Banks for capital-gains exemption purpose? Are such deposit schemes still available?

  2. >REC in its website has mentioned Capital gains tax exemption bonds – 54 EC section. Is it for the tax that is to be saved on capital gains tax ie., applicable for gain in selling a plot of land?

    2. I was told that if we keep the capital gain money in a bank fixed deposit and use it later in 3 years for purchasing a house / constructing a house tax exemption is available. Is it correct?

  3. >Subrahmanyam: I think it's for saving long term capital gains tax, don't know if it's only for real estate based gains only. I think it's for all of 'em. Contact an accountant to confirm, though.

    2. You get only 6 months nowadays. I think a year at the very max.

  4. I have a specific request. I sold an ancestral property on 27th November -2007 and I was looking to buy a new pproperty for reinvestment and In the month of april 2008 I wanted to invest 50lakhs in any of 54EC capital Gains Deposit( REC, NHAI etc) to find no such 54EC investments were available. But to have my bad luck I found NHAI advertised 54EC effective from 26th MAY-2008 and I could manage to act and make the investment into appropriate banks IDBI only on 30th May 2008 by which time I passed over the 6 month period 27th May 2008 by 3 days. I would like to know that any Govt. Notification to grant extension to take care of this unfortunate delay of 3 days so that capital Gains exemption is restored for this investment. Your valuable advise is very much appreciated.

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