Pay Long Term Capital Gains Tax or Buy Sec 54EC NHAI/REC Bonds?

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I have long term capital gains (LTCG) from my real estate investments. Hence I have to pay long term capital gains tax. So should I pay the long term capital gains tax and invest the remaining money elsewhere? Or rather, should I save the tax under Section 54EC of the Income Tax Act, 1961, by buying the capital-gains-tax-exemption bonds? These bonds are issued by the National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC). What is the most ideal option? I got baffled by this question a few years back. Accordingly, I had worked out the math then.

Recently while trolling some Facebook forums on wealth creation, I came across the same question raised by one of the members of a forum. Consequently, I answered as below showing the math. Moreover, if you have long term capital gains from your investments in real estate properties, it should be useful for you too.

Question:

Is it advisable to buy NHAI/REC Bond to save capital gain tax on the sale of an asset like land, property, etc.? I came to know that interest rate is 6% (taxable) and lock-in period is 3 years.

Answer:

I have made a rough computation for your perusal. Find below.

Suppose you have indexed LTCG of Rupees 20 lakhs. (You can calculate the indexed cost and long term capital gains with this LTCG calculator.) Now let’s work out the math under five scenarios for 3 years, the period for which LTCG needs to be locked in REC/NHAI bonds.

Possibility 1: Subscribe to capital gains tax exemption bonds. Save tax

First year

  1. Under section 54EC of the Income Tax Act, 1961, long term capital gains arising out of the sale/transfer of any capital asset owned for more than 3 years can be exempt from income tax if the said capital gains, subject to a maximum limit of Rs 50 lakhs, is invested within 6 months from the date of the said sale/transfer, in capital-gains-tax-exemption bonds issued by NHAI or REC. The rate of interest is 6% per year. However, the interest earned is taxable at the hands of the taxpayer, though TDS is not deducted at source.
  2. Now assume you got REC bonds allotted on June 30*. (*Interest will start accruing from the day the subscription money is credited to the REC account. Deemed date of allotment is the last day of each month in which the subscription money is received and credited to the REC account.) For computation purposes here, let’s consider the deemed date of allotment.
  3. At the onset, you save capital gains tax of Rs. 4 lakhs at the rate of 20%.

Second year

  1. Thus, you will be paid Rs. 1.2 lakhs after one year as interest at 6% on June 30th. Subjecting this to 30% income tax, assuming you to be in the highest tax slab, you will be left with Rs. 84,000.
  2. Further, you deposit this in bank fixed deposit (FD) at 8% interest rate for the next 2 years. (Though parking money in fixed deposits for the long term is a bad idea.) Consequently, the interest earned will be Rs. 14,409. Subjecting it to 30% income tax, you will be left with Rs. 10,086. Now 84,000 + 10,086 = 94,086.

Third year

  1. Subsequently, you will get your second installment of Rs. 84,000 at June 30th of the second year, assuming that you paid 30% income tax on that as well.
  2. Assuming that interest rate has gone down by 1% by then, you deposit this amount in bank FD at 7% interest rate for the next 1 year. The interest earned will be Rs. 6,032. Subjecting it to 30% income tax, you will be left with Rs. 4,222. Now 84,000 + 4,222 = 88,222.

Fourth year

  1. Furthermore, you will get your third installment of Rs. 84,000 at June 30th of the third year, assuming that you paid 30% income tax on that as well.
  2. Thus the total amount in your hand at the end of third year: 20,00,000 + 94,086 + 88,222 + 84,000 = 22,66,308.

Possibility 2: Pay capital gains tax. Invest the balance in bank FDs

First year

  1. You paid LTCG tax of Rs. 4 lakhs at 20% of the total indexed gains and are left with Rs. 16 lakhs.
  2. You deposit that amount in bank FD at 8% interest rate for 2 years, because you get the maximum interest rate for deposits more than 1 year and less than 2 years.

Third year

  1. You will receive Rs. 2,74,051 at the end of 2 years out of which you would have paid around Rs. 79,078 as income taxes. So the net interest receipt is Rs. 1,94,973.
  2. After the second year, you will be left with 16,00,000 + 1,94,973 = 17,94,973.
  3. Further, you deposit that amount again in bank FD at 7% interest rate for the third year.

Fourth year

  1. Subsequently, you will earn Rs. 1,28,894 as interest. After paying 30% income tax, you would have earned Rs. 90,226 as interest for that year.
  2. Thus the total amount in your hand at the end of third year: 16,00,000 + 1,94,973 + 90,226 = 18,85,199.
  3. THEREFORE THE NET AMOUNT IN YOUR HAND AT THE END OF THE THIRD YEAR WOULD BE NOWHERE NEAR YOUR INITIAL AMOUNT OF RS. 20 LAKHS.

Possibility 3: Pay capital gains tax. Invest the balance in tax-free bonds

First year

  1. You paid LTCG tax of Rs. 4 lakhs at 20% of the total indexed gains and are left with Rs. 16 lakhs.
  2. You invest this in 10 year 7.36% tax-free bonds.
  3. Let’s compute your return for 3 years alone, as the lock-in period in our case of REC capital gains bonds is 3 years.

Second year

  1. At the end of the first year, you will earn a tax-free interest of Rs. 1,17,760.
  2. You park this money again in bank FD for 2 years at 7% interest rate. You would earn an interest of Rs. 17,520 for the 2 years. Out of this, you would have paid 30% income tax in their respective years totaling Rs. 5074. So after paying the tax, the interest in your hands will be Rs. 12,446.

Third year

  1. At the end of the second year, you will again earn a tax-free interest of Rs. 1,17,760.
  2. Further, you park this money again in bank FD for 1 year at 7% interest rate. You would earn an interest of Rs. 8,456 out of which you need to pay 30% income tax which works around Rs. 2,537. So after paying the tax, the interest in your hands will be Rs. 5,919.

Fourth year

  1. At the end of the third year, you will again earn a tax-free interest of Rs. 1,17,760.
  2. Thus the total amount in your hand at the end of third year: 16,00,000 + 1,17,760 + 12,446 + 1,17,760 + 5919 + 1,17,760 = 19,71,645.
  3. HOWEVER, YOU DIDN’T REACH YOUR INITIAL AMOUNT OF RS. 20 LAKHS.

Possibility 4: Pay capital gains tax. Invest the balance in shares and MFs

Scenario 1: Invest in shares through mutual funds

  1. You paid LTCG tax of Rs. 4 lakhs at 20% of the total indexed gains and are left with Rs. 16 lakhs.
  2. Historically stocks remained the best option to build wealth and compound money over the long term. Long term capital gains in stocks are not taxed in India since 2005 except that you pay a minor securities transaction tax (STT) while buying and selling stocks. So you invest the amount in mutual funds (or stocks) and grow it tax free at 12.305% CAGR for 3 years to reach an amount of Rs. 22,66,308!
  3. You need to find a mutual fund that performs better than 12.305% CAGR. I don’t know if there are any. Mutual funds are out of my circle of competence. Hence I am unable to comment authentically on that aspect.

Scenario 2: Invest directly in shares

  1. For the past four years since the turn of this bull run, I am unable to identify a good value buy in equities. With tax-paid cash in your hands and the time passing on day by day, you won’t be able to sit tight with the cash. You will have a guilty feeling in mind that you already lost Rs 4 lakhs as taxes. You’ll think you need to make up that loss and earn something over and above it to prove that you did something right. Psychologically you will be compelled to do something with what you call ‘investor’s itch.’ Eventually, you will end up buying something dud, whether stock or something else, because you are acting out of compulsion.
  2. Maybe in a bear market, you may be able to perform better as a value investor, and it would have been a different story altogether. So isn’t it better to be safe than sorry with a lesser base compounding rate of 12.305% in the first three years with REC/NHAI bonds?

Possibility 5: Invest the long term capital gains back in real estate. Save tax

  1. Long term capital gains on sale of a residential house property are exempt from tax under Section 54 of the Income Tax Act, 1961, if you purchase another residential house property within one year before or two years after the sale of this property or construct another new residential house property within 3 years from the sale of this property, utilizing the entire corpus of LTCG (20 lakhs here in our example).
  2. Long term capital gains on sale of any land or plot other than a residential house property are exempt from tax under Section 54F of the Income Tax Act, 1961, if you purchase a residential house property within one year before or two years after the sale of this property or construct a new residential house property within 3 years from the sale of this property, utilizing the entire corpus of LTCG. Note that you should not own more than one residential house property prior to this investment. You should not invest in a commercial property or in another vacant plot.
  3. Now in our example, you invest the entire sale proceeds (LTCG plus non-taxed sale proceeds) in another real estate, i.e., buy or construct a residential house property, or run after a builder and then wait for a bigger fool/luck/real estate market to come handy. Real estate prices have risen to astronomical levels. Consequently, I doubt whether real estate investments would fetch the same returns of the past except at a few selective places. Of course, it would be a different story altogether if the new property is going to be for your self use.
  4. Since a lot of different factors have to be considered in this scenario with different permutations and combinations, I am unable to compute the outcome/gains.

Conclusion:

To summarize, if you are unable to find an attractive investment option that could fetch you a return of 12.305% CAGR, parking your capital gains in REC or NHAI bonds is by far the best option to protect your capital and for the interest that’s going to be earned from it, as you will be left with Rs. 22,66,308 (for a LTCG of Rs 20 lakhs) at the end of the third year after the stipulated lock-in period of the said bonds is over.

109 thoughts on “Pay Long Term Capital Gains Tax or Buy Sec 54EC NHAI/REC Bonds?”

  1. Hello Sir,

    How can I buy REC or NHAI sec 54ec bonds? Do they come out at a particular time in a year? or Are they available all round the year?

    Thanks

    Reply

    • Download the application form online, fill it, and approach any collection banker. For any particular year, it should be available until the issue size is fully subscribed.

      Reply

  2. I have a follow up question on long term capital gains and investment in infra. bonds.
    If I purchase 50 lacs in bonds (54 EC) for Property A sold in current financial year 2015-2016, could I purchase another 50 lacs bonds for Property B sold in next financial year 2016-2017. Thanks! Each of these properties have Capital gains more than 50 lacs.

    Reply

    • Irrespective of the number of properties, the maximum cap per individual per financial year is Rs 50 lakhs. In your case, you say that the properties are sold in different financial years. So yes, you are eligible to claim.

      Reply

  4. Hi Raj,
    Thanks for running down the scenarios. I also read through the 54EC application form for required details. One question I was not clear on was “What document should i produce to the buyer to evidence that I will be investing the LTCG proceeds into NHAI/REC bonds within 6 months?” Do I need to invest in the bonds before the final payment? Do I need to procure the certificate from Income tax department? Court affidavit? please provide some guidance.

    Reply

    • This scenario is significant only for NRIs, as 20% would be axed from their payment if they do not obtain NIL Tax Deduction/Tax Exemption/Lower Tax Deduction Certificate from the Income Tax Office.

      Now I am assuming you to be a resident Indian. For resident Indians, no matter whether you reinvest or not, 1% TDS on the total sale consideration has to be deducted by the buyer if the total sale value exceeds Rs. 50 lakhs. It is intended to alert the taxman of your transaction. However, you can claim refund of the said TDS if you reinvest the LTCG appropriately.

      Obtain Form 16B from the buyer. Invest your LTCG as deemed appropriate. File your IT return along with the said Form 16B. Claim refund of the TDS.

      Reply

  5. I have sold some property. I wanted to discuss and invest through you to save paying capital gains tax. Kindly email me your contact details (mobile & email id) to enable me to get in touch with you. Rgd, Dr M Shahed

    Reply

    • Thanks for considering me as a valuable source.

      However, neither am I a registered professional financial advisor nor do I manage others’ money. Hence I am helpless in this regard.

      I do not have any professional qualification in finance. I share here on this blog only my personal experiences and thoughts.

      If you think your doubt can be shared here, go ahead. Let us try to arrive at a best possible solution.

      Reply

  6. Thank you for the detailed explanation in a very clear manner. My current status is NRI and I am selling my property in India and I will have a long term capital gain. Can you please let me know what are the option I have to save tax and invest my money wisely.

    Reply

  7. Hi,

    I am a NRI based out of USA.

    I bought a house for 43 lakhs and sold now for 34 lakhs this month ..means for 9 lakhs loss..do i still need to invest that 34 lakhs in REC bonds…I payed 43 lakhs from my US income and presently the 34 lakhs is in NRO account.

    Appreciate your advice for tax savings

    Reply

    • It is a capital loss. How can it be taxed?

      However, you can set off capital loss against any future capital gain up to 8 years. You need to file IT return now claiming the capital loss.

      If loss under the head “Capital gains” incurred during a year cannot be adjusted in the same year, then unadjusted capital loss can be carried forward to next year.
      In the subsequent year(s), such loss can be adjusted only against income chargeable to tax under the head “Capital gains”, however, long-term capital loss can be adjusted only against long-term capital gains. Short-term capital loss can be adjusted against long-term capital gains as well as short-term capital gains.
      Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred.
      Such loss can be can carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1)​.​

      Source: Income Tax Department.

      Reply

  8. Hi,

    I have a situation where the LTCG is 1 Cr. and closing is scheduled for July 31st. Is it possible to invest 50L in REC before Dec 31st and another 50L anytime after March 31st to avoid completely the LTCG tax. Please advise.

    Appreciate your advise.

    Reply

  9. Suppose I sell property on 27th Jan 2016 and apply for the bond on 21st July 2016, shall I be eligible for claiming deduction under section 54 EC? They say time to invest is 6 months; what and which date shall be the last date in my case?

    Reply

  10. Let a person’s annual income is 5=6 lacs yearly and he files his return every year……but he receives an amount of about 15 lacs in parts during f y 15-16 in his bank a/c on selling some land ………the matter is>6 months but <18 months…….then how to show this amount in the I T return of AY-16-17 and what could be the taxable amount

    Reply

  11. Hi friend,

    I was actually looking for the exact issue which you have addressed very beautifully. I have one query I hope you have time to resolve them.

    – Can I re-invest in the said bond after 3 years upon maturity? Yes/No? If yes good, if No do u have any viable solution/option of similar nature in your mind?

    Reply

    • 1.) Yes, you can but the interest earned will be taxed as per your tax slab, and if you don’t have any capital gains, investing again in these bonds is not of any significance.
      2.) Now I am puzzled why would anyone be interested in investing in a bond without the need of capital gains tax benefit or any tax relief on interest.
      3.) You have umpteen other choices which you have to figure it out yourself depending on your mindset and situation.

      Reply

  12. Hello Sir,
    I am an NRI migrated abroad in 2008 having plot in India purchased in 1994.If I sell my plot now , what is the best option to save LTCG.A Builder is planning to buy some plots along with my plot and ready to give Rs 80 Lakhs in cash +a free constructed flat costing 90 Lakhs on the combined land.
    how to save Max Amount of tax under existing rules?

    Reply

  13. Raj,

    I am an NRI who sold property recently and have 20 lakhs to purchase NHAI capital gains bonds. Could you elaborate a little on what is involved in getting the Tax Exemption certificate from the Income Tax Office?

    You said in an earlier post:
    “This scenario is significant only for NRIs, as 20% would be axed from their payment if they do not obtain NIL Tax Deduction/Tax Exemption/Lower Tax Deduction Certificate from the Income Tax Office.”

    Thanks for providing this valuable information.

    Reply

  16. Not sure if this is already answered. On sale of property, I made LTCG of 45L and invested entirely in 54EC bonds. Now 1 year later, I am buying another property. Can I withdraw early from 54EC and still retain old LTCG, since I will be moving to 54?

    Reply

  17. Hi
    I have an urgent query regarding the Long Capital Gain exemption u/s 54 & 54F

    I sold a DDA flat in year 2011-12 and capital gains of Rs 46 lacs (which was deposited in bank account u/s 54) and was invested in a Godrej flat having total value of app 95 lacs and having construction linked payment plan.
    Complete capital gain was utilized by 2013-14.
    The payments of installments are still being made and possession of this flat is expected by Jan 17.

    Now I have sold plot of Land in 2015-16 for consideration amount of 90 lacs and capital of Approx 50 lacs are accruing on this.
    Can I use part of this capital gain for payment made to Godrej since last one year and keep balance amount in capital gain bank account under sec 54 F.

    I don’t have any residential property registered in my name.
    Thanks
    Regards
    Ankit

    Reply

    • You need to invest the entire sale proceeds to claim the exemption with a cap of Rs 50 lakhs, i.e., 50 lakhs in the bonds and pay LTCG for 20 lakhs in your case. If you invest half of the 70 lakhs, then capital gain exemption will also be reduced by the same proportion. So you need to pay capital gain tax on 50% of the 70 lakhs, i.e., for 35 lakhs you have to pay long term capital gains tax and for the other 35 lakhs, capital gain will be exempted by investing in Sec 54EC bonds.

      Alternatively, you can invest the whole gain without paying any tax in a residential house property under Sec 54F, provided the assessee doesn’t own more than 1 residential property.

      Reply

  21. I had my father land . I have sold some part of it to some one and got 20 lack. Rest land we have( my family including me) given power of attorney with sale right to brocker and took 20 lack again . And deposited 40 lack in joint account of my mother and me. Now I want to buy Nhai bond.

    My query

    1- can I buy bond for 40 lack.
    2- if yes so who will be bond holder ( both Mother and me or fist holder of account)
    2- if yes so after buying I need to file it return. Because I have never file it return .

    Reply

    • 1.) Sec 54EC bonds cannot be bought for the property not sold, i.e., for the land you have given power of attorney. Note that you have given just a power of attorney; hence you are still the owner of the land and the one who got the power of attorney is not the new owner.
      2.) Since the ownership was held jointly by your father’s heirs, obviously tax liabilities that arise out of the capital gains would also be jointly as per the proportion of ownership. So you can either buy either jointly for the aggregate amount or individually for your proportion of the amount but keep in mind that even if you make separate applications, individually or jointly, the aggregate investment should not exceed Rs50 lakh.
      3.) Yes you have to file income tax return. Even if you have bought Sec 54EC bonds, it doesn’t mean you got immunity or you have been accorded exemption; you have to file income tax return to claim the exemption.

      Reply

  22. Sir,
    Is it necessary that 54 EC BONDS should be purchased at one time or in different spells-say 4 or 5 times in batches within six calendar months?

    Please clarify.

    Reply

    • Rs 50 lakhs is the cap per person per financial year irrespective of the number of tranches you buy. Wondering what you are aiming to achieve by staggering your purchases!

      Reply

  23. We (my wife and I) bought an apartment in 1993 for IRS. 325,000/= while we were in Dubai, United Arab Emirates as NRI. Since then we did not use this apartment and we visited India few times. In 2010, we moved to Canada and became Canadian Citizen in 2014. We surrendered our Indian Citizenship and now we are Canadian Citizen. We hold PAN card. We recently (last week) sold this apartment with Furniture. The break up is IRS. 28,30,000/= towards value of the Flat and IRS. 5,66,688/= towards cost of the furniture. Total amount has been deposited in our NRO bank account. Presuming there is no deduction of any expense, please guide us as to how do we go about with this? We have never filed any income tax return. If you know any CA and let us know who can file our returns and open file for us. Also are we eligible to apply for the above bonds?

    Reply

    • You can either pay tax and take away the balance or invest in Sec 54EC bonds and file income tax return to save tax. Yes, you are eligible for the bonds. Request your close Indian friends/relatives to refer a tax consultant to help you out.

      Reply

  24. I would like to know, I was invested 20 lakhs in 54 EC BONDS, now after 3 years Lock In is over,

    If I will deposit this amount in FD?? there is (30% ) tax on 20 LAKHS?

    Can I reinvest again in 54 EC BONDS? there is again no TAX liability on me like 3 years prior there was no tax on 20LAKHS & tax only on interest amount?

    Reply

    • 1.) No. There is no tax on the principal (20 lakhs) but the interest receipt adds to your income and will be taxed as per your slab.
      2.) Why do you want to invest again in Section 54EC bonds that has a lesser interest rate of 6%, when you have even bank FDs at a higher interest rate of 7% or more? Bank FDs could be liquidated any time you need cash which is not possible with the bonds. Both interest receipts, from Sec 54EC bonds and from bank FDs, are taxable anyway. So, what is the benefit for reinvesting it again in Sec 54EC bonds?

      Reply

  25. I think scenarios need to be revised as per current trends ROI being 5.25% from Dec 1,2016.

    Second there is a possibility of abolishing income tax , what happens in such a scenario

    Reply

  26. Sir,

    I am a NRI. I already own 3 houses which earn rent. Presently I have received a capital gain of say Rs. 20 lakhs. Am I eligible to buy another residential property to avoid Tax?

    Reply

  28. Hi – we are going to sell a property in March. The capital gains is well over 90 Lakhs. Is it possible invest in Capital gains bonds – 50 Lakh this financial year (before June) and the remaining next financial year (after June) and still be exempt from LTCG as I am investing within 6 months? Any insight would be greatly appreciated as I do not want to invest in another property and looking for a safe investment to avoid paying LTCG.

    Reply

  29. Hello sir,
    I sold my residential plot for 90 lakhs and bought a residential flat thereafter for 40 lakhs.
    Im still left with 50 lakhs capital gain funds. Shud i consider investing this 50 lakh in capital gains bonds to be exempt from ltcg tax or buying another residential property.

    Reply

    • You can utilize both the options at a time, i.e., buy a residence and invest the remaining up to 50 lakhs in Section 54EC bonds. However, you CANNOT utilize a single option twice, i.e., you CANNOT buy two residences or CANNOT invest the amount beyond 50 lakhs in capital gains tax saving bonds in a single year for a single sold property.

      So the only option left behind to save capital gains tax for you is to invest in Section 54EC bonds before 6 months.

      Reply

  30. Are LTCG bonds available today
    I intend to buy.
    I have sold a plot residential last month. My sale proceeds are 25 lakhs. Am I required to buy bonds got the entire sale proceeds or net of indexation
    Bonds are to bought from Bank or directly from REC, NHAI

    Reply

  31. Hello Sir ,

    I have a query also just to correct my understanding . I have a plot in village near Lucknow city . I am planning to sell the plot . Do i need to pay capital gain tax on that ?

    Reply

    • Unless you invest the long-term capital gains in the assets/bonds as prescribed by the laws, you should have to pay capital gain tax.

      Reply

  32. Hi, when I sell a residential land, to get full exemption of my LTCG u/s 54EC , do I need to invest the entire sale proceeds in NHAI/REC bonds or is it okay if I invest just the LTCG portion only in NHAI/REC bonds? Will the exemption be reduced in proportion to the investment in NHAT/REC as I did not invest the entire sale proceeds? LTCG 20 LACS, SALE PROCEEDS 45 LACS. How much should I invest in NHAI/REC bonds to get the full LTCG OF Rs.20 lacs exempted?

    Reply

  33. I have sold shares in this year (2017) on and after 15th March , but if I transfer the cash amount of sale proceeds in next FY (2017-18) lets say in the month of april 2017 then can I invest that amount in NHAI and REC bonds in april and then claim for tax exemption while filing return for the current FY(2016-17) ?

    Thanks

    Reply

  34. Dear sir,
    I have a question, that if I purchase the 54EC bond after 6 month of property sale, then i am eligable or not to get tax benefit.

    Reply

  35. Hi,

    A quick one. After the 3 yr lock in period of the bonds am I free to use the invested amount in anything other than property purchase?

    Reply

  37. Dear sir
    I have two plots . I want to sell one plot this financial year 2017-18 and other in year 2018-19.
    Is it possible to invest capital gain in capital gain bond seperatly fifty lacs each year or ican invest only once.

    Reply

  38. Very informative,
    Sir I hv kept my LTCG amount say xx in capital gain account.
    Due to some reason I am not able to reinvest it in real estate,
    Can I now hv option of investing in NHAI/REC bonds? Even after keeping it in Capital gain account for 1.5 yrs?

    Reply

  39. Hi Raj, your information is quite detailed an helpful.
    My apologies if I am repeating an often asked question.

    Post lock-in period,does any kind of tax has to be paid on the principal amount received?

    I understand the tax to be paid on the income received on any future investments of the principal.
    The reason for asking this question,even though you have answered it above is because, when an enquiry was made at the income tax office. the official had categorically said that the principal will be taxed at 20 %, after the 3 year lock in period.

    If you could give any clarity along with a few actual cases, it would be helpful.

    Thanks

    Reply

    • No. Wrong information. No tax on principal at the end of the lock-in period. The bonds are specifically meant to avoid taxes, however, to help the government also in nation building the other way round, by providing the government your money for lesser interest than the market. If capital gains are to be taxed at 20% after the lock-in period, then what is the significance of the 54-EC bonds? You could pay the tax right at the beginning and move on without investing in the bonds! Whoever who gave you that advice/information is ignorant.

      After the 3-year period, the principal can be spent lavishly without any tax or reinvested anywhere legally possible without any tax.

      Reply

  40. Hi Sir, need your help. I sold the property in June 2016, can I invest in NHAI bond now i.e. 30 June 2017 for the capital gain of 11 lakhs?

    Reply

  41. also how do I invest in the bond, I am not in India currently (not NRI), I have mutual fund online account – can I buy these bonds online?

    Reply

  42. My sister in law sold her flat in November 2016 (Date of Agreement & Registration). She had received 10% payment at that time. However due to delay in getting the loan the buyer could pay her the balance 90% now i.e. July 2017. So how will the Long Term Capital Gains be calculated ?

    Thanks

    Reply

    • Tax payers will have umpteen excuses but not for taxman. Irrespective of when you received the full payment, whether you did the registration after accepting part payment or even without receiving anything, the registration date is the date of change of ownership. The capital-gains clock started back then itself, and the time for Section-54EC bonds ended six months thereafter. Regarding ‘how will the long-term capital gains be calculated,’ Google it out or an accountant could be of help.

      Reply

      • Appreciate your reply and the clarity in your answer. However how can one invest in 54EC Bonds when the amount is not even received.

        Reply

          • Thats a joke……….not because it is my problem. I am sure not even 1 % properties will be registered after receiving full payment. Anyways thanks for your replies.

          • No, not at all. Blame it on your ignorance.

            “Ignorantia juris non excusat.” Ignorance of law cannot be claimed as an excuse!

            How should the capital gains be accounted as per Income Tax Act? Whether on accrual basis or receipt basis? Read here.

  43. Hi Raj,

    Appreciate the scenario analysis above.

    I just had one question…I had invested the sale proceeds in REC bonds in Feb 2015.However,the cheque for the interest amount due in June’16 was returned due to some mis-communication with the bank involved and hence the amount could not be credited.
    Can I include this amount in my Income tax return for Assessment year 2017-18 on accrual basis,although the money was not actually received?
    I would prefer to do so.Would really appreciate your advise.

    Reply

    • Yes you can, assuming you followed the same method of accounting for the receipt in June 2015 (corresponding assessment year 2016-17) and will be following the same method of accounting for the receipt in June 2017 (corresponding assessment year of 2018-19) as well.

      Reply

  44. Sir – i am selling a property in Bangalore for 75L. My question is – can I invest 50L in the Capital Gains NHAI bonds and remaining 25L pay capital gains Tax and invest in LIC pension plans?

    (original property value+construction=15L in 2004, now selling for 75L).

    The reason I am asking this is because – My accountant says I need to invest either ENTIRE amount (tax exempt only 50L) or Pay tax and use the entire amount as I like. He says I cannot split the amount into 50L BONDS and remaining 25L pay tax and invest in LIC pension scheme, etc.

    Pls advise as I am confused.

    Reply

  45. The time limit for investing in NHAI or REC bonds is six months. Can we park capital gains money in the savings bank account until then or we need to open any special bank account for this purpose?

    Reply

    • Even I was in the same situation. My accountant said no need any special account. You can deposit in normal SB account itself (assuming you will invest within 6 months in the Bonds). If you are sure you wont invest in Bonds and want to buy another property, then you can put in the Capital Gains account. I think money can be lying there for 2 yrs but you cannot touch the money for any purpose other than buying another property.

      Reply

  47. My wife sold a property for Rs.70 lacs which was solely in her name. She arrived a Long term capital gain of Rs.74 lacs. She paid 20% LTCG tax on Rs.24 lacs and for balance Rs.50 lacs she bought NHAI Bonds within 6 months from the date of the sale of the property, from her own savings bank account in which the sale proceeds were deposited. But as she is about 68 years old and I am also 71 year, old to be on the safer side and to avoid any problem in future, she purchased these bonds in joint names, first holder my wife, second holder myself and third holder my daughter.

    Would my wife be entitled to get 100% exemption u/s 54EC for Rs.50 lacs invested in bonds?

    I shall be grateful for your expert opinion.

    Regards

    Vinod Srivastava

    Reply

  48. I sold my residential flat in Mumbai now want to buy flat in Pune. Can I get capital gain tax exemption by purchasing flat at Pune. Need your valued guidence in this
    Thanks & Regards

    Reply

  50. I will have ltcg of 75 lacs by selling 3 flats @ 25 lacs each. By Dec 2017 I want to sell 2 flats and buy NHAI bonds for 50 lacs by Jan 2018 and the 3rd flat I want to sell @ 25 lacs by Aug 2018 and buy NHAI bonds before oct 2018. Can I do this for saving tax?

    Reply

  51. we invested in REC bonds in 2015, we did not receive any original bond certificates. how do I obtain the original bonds or do they send it in time when we have to redeem it. please advise

    Reply

  53. My mother sold a land and there is LTCG
    1. Is it possible that she can give whole sale proceeds to me & I invest LTGG portion in NHAI/REC bonds?
    2. If not, is it possible that I fill the application form with my name as first applicant & her’s second?
    3. Whether my account details can be given for interest payment or redemption even if she is the first applicant? If no, then how to redeem if she changes her name after one year (she intend to change her name due to some discrepancies in other documents)

    Reply

  54. I have purchased a flat at Rs.3.6 lacs in the year 2005 and I plan to sell it at Rs.23 lacs in December 2017. Out of this how much amount I have to use to purchase NHAI bond to gain LTCG. I am not filing IT as I have no other income than a petty amount of Rs.8000/- per month as rent from the said flat. Myself and husband both are senior citizen. Please advise

    Reply

  55. My mother sold a land and there is LTCG incurred:

    1. Is it possible that me or my wife become the first applicant & my mother second while buying Capital Gain Bond (NHAI/REC) and still my mother can claim capital gain exemption?

    Reply

  56. Hello,
    Request your opinion on following wherein I wish to sale my flat . Currently I have two options . Request to check the calculations under OPTION-A and suggest if is it advisable to invest in Bonds as an Option-B .
    OPTION-A ( PAYING LTCG TAX )
    COST OF ACQUISITION OF FLAT : 6 LAKH IN YEAR 1997
    SELLING PRICE OF FLAT ; 45 LAKH IN YEAR 2017
    INDEXATION COST : = YEAR 2017 IS 1125 & YEAR 1997 IS 331
    INDEXATION COST : = 1125 / 331 = 3.40
    COST OF ACQUISITION AFTER INDEXATION : = 6 LAKH * 3.40 = 20.40 LAKH
    LONG TERM CAPITAL GAINS = 45 LAKH – 20.40 LAKH = 24.60 LAKH
    LONG TERM CAPITAL TAX @ 20 % IS = 24.60 LAKH * 20 % = 4.92 LAKH
    LONG TERM CAPTAL TAX WITHOUT INDEXATION IS = 45 LAKH – 6 LAKH = 39 LAKH * 10 % = 3.90 LAKH
    OPTION-B ( INVESTING LTCG IN 54EC BONDS )
    Is it advisable to invest the proceeds of Long term capital gains of 24.60 LAKH in 54EC Bonds rather than paying upfront Tax of LTCG .

    Pls. advise

    Reply

  57. I run a private limited company. I had purchased a office space i the year 2012.
    For last two years I have had no transactions as market was very bad.
    I now want to sell off my office space and use the money to pay off loans accumulated in my business.
    How do I save Income Tax on LTCG?

    Reply

  60. I have not received my original REC bonds, will my money be transferred to my account on maturity. What is the procedure and documents required on maturation of the REC bonds.

    Reply

  62. Hi Sir

    I have sold my grand father Agriculture land which was 40 years old land . As son I have received 70 Lac . Now Shall I put 50 lac in bond and rest 20 lac should I purchased only Agriculture land or I can buy house or office ? Kindly advise me .

    Regards
    Amit

    Reply

  63. I want ti buy bond thru 54c to get excemption from paying taxes. Where can i buy these bonds from? Your post is very helpful. Thanks. Your reply is much appreciated.

    Reply

  64. If the capital gain is 1 Cr.
    I sell the property in January.
    Buy REC bonds in Jan for 50 Lac i.e 1 financial year.
    Buy REC bonds in April for 50 Lac i.e next financial year

    Is that allowed?

    Reply

  65. if i invest in LTCG Bond of NHAI or REC what amount i have to invest sale of my house property or only capital gain and next question is the maturity after five years should i use the entire amount as i want to invest it or is there any restriction.?

    Reply

  66. After investing capital gain to 54EC bonds and If the person transfer or take a loan against these bonds within finve years, will the capital gain become taxable? 54EC bonds have a lock in period of 5 years and non transferable.

    If the person take a housing loan or any other loan within 5 years, capital gain will be taxable?

    Reply

  67. I am selling a property for 75 Lakhs.
    Baught at 40 Lakhs 7 years ago.
    Can I invest 50 Lakhs in NHAI bonds and 25 Lakhs in REC?
    Separate instruments.

    Reply

  68. I have invested 30 Lac on GOV OF INDIA BOND NHAI for Capital Gain on November, 2018 THROUGH ICICI SECURITY Demat / Trading Account.
    I have recently received a copy of payment receipt after a long time which is not very clear to me. The Application No.31817867 Dated 11.11.2018.
    I have been informed by ICICI SECURITY.Com that the invested amount will appear in my TRADING ACCOUNT but they do not know when and how.
    I am a 74 years old man. I want piece of mind on this if not for me I want to tell my family I did the right thing. I may not live long. Thank you.

    Reply

  69. I am making use of 54EC for the LTCG on sale of a property in Fin Yr 2021-2022. I want to sell another property in January 2022. Can I make use of 54EC in April or May 2022.

    Reply

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