By Preeti Motiani
If you are planning to invest any long-term capital gains (LTCG) from sale of house property, land, building, jewellery etc. in Section 54EC bonds in order to avail tax exemption for these gains then it would be a good idea to do so by March 31, 2018. Here's why.
If you have sold a house during the financial year 2017-18, which you have held for more than two years, then the gains arising from the transaction are treated as LTCG. Such gains from selling a house are taxed at 20 per cent with indexation benefit. You can also invest LTCG from sale of jewellery, debt mutual funds etc., held for more than three years, in these bonds to save on paying tax on them.
Here, one must remember that capital gains from sale of immovable properties such as land, building or house property, will qualify as long-term only if they are held for at least two years. In case of other assets such as jewellery and debt mutual funds, it must be held for at least three years for the capital gains to qualify as long-term.
Why you should invest gains before March 31
A taxpayer, who has sold a house, has the option to invest the gains to buy or construct a new property or invest it in 54EC bonds to save tax on those gains within the specified time period. LTCG tax will not be payable on the amount of gains so invested.
However, you should invest before 31 March, 2018, as bonds issued after this date will have to be held for a minimum of five years instead of three years for similar bonds issued till March 31, 2018. "Budget 2018 has proposed to increase the tenure of 54EC bonds from three years to five years. This proposal will come into effect from 1 April, 2018. Also, starting from FY2018-19, these bonds can only be used to save tax on LTCG accrued from land, building (house property) or both," explains Abhishek Soni, CEO, tax2win.in, a tax-filing firm.
Therefore, all the bonds specified under section 54EC issued on or after 1 April, 2018 will come with a tenure of five years. If the bonds are redeemed before the completion of five years, then you will lose the tax benefit.
What the present rules say
As per the income tax rules, a person can save tax on LTCG arising from sale of house property by using any of the following:
a) Either to invest those gains to buy a house within two years, or
b) Construct a house using the entire gains within three years, or
c) Invest in specified bonds under Section 54EC within six months from the date of transfer of the property sold.
To reduce the tax outgo from LTCG made from any other asset such as jewellery, debt mutual funds etc, an investor has the option to pay tax at a rate of 20 percent with indexation benefit before March 31, 2018 or invest it in 54EC bonds. After March 31, you will have to pay tax or can use LTCG to invest in residential property as per section 54F, adds Soni.
As per the section 54EC of the Income Tax Act, such capital gains are to be invested in these bonds within six months from the date of transfer, irrespective of whether those six months from the date of transfer, irrespective of whether those six months expire in the next financial year or not.
Therefore, if the house sold by you has a transfer date of October 1, 2017, then you have time only until 31 March, 2018 to invest in 54EC bonds. For those taxpayers, whose transfer date is after October 1, 2017, the six months will end in the next financial year depending on the date of transfer. "In case you are planning to invest the gains in 54EC bonds, it will be beneficial to do it before 31, March 2018, as you will get the benefit of holding the bonds for three years only," says Soni.
Who issues these bonds?
The most common notified 54EC bonds are offered by National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC). Starting from FY2017-18, Power Finance Corporation (PFC) has started issuing bonds eligible under 54EC.
A taxpayer can invest a maximum of Rs 50 lakh of the capital gain incurred in these bonds. As per the website of the issuers of 54EC bonds, i.e., NHAI, REC, PFC, the interest rate offered is 5.25 per cent which is payable annually. The interest date payment and minimum amount to invest varies. Interest is taxable in the hands of the investor depending on his/her income tax slab.
No comments:
Post a Comment