Instead of paying long run capital good points tax on the rate of 20 %, you may spend money on bonds issued by some choose PSUs comparable to REC (Rural Electrification Corporation). This means, you cannot solely save capital good points tax however earn curiosity on it on the similar time.
If you maintain a property for greater than two years and promote it, the capital good points are liable to earnings tax.
To save this tax, tax payers, beneath part 54EC of Income Tax Act, are entitled to spend money on tax-saving bonds comparable to these points by REC. Starting April 1, 2022; NHAI discontinued these bonds whereas REC has launched the brand new sequence of 54EC capital good points tax.
Tax payers should be conscious that this funding may be made inside six months of promoting the asset that generated the capital good points. Being AAA-rated, these bonds provide security to traders.
After promoting these bonds upon completion of 5 years, tax payers usually are not meant to speculate anyplace, and the money obtained is tax-free topic to tax on curiosity earned on these bonds.
Illustration: Let’s suppose you could have a property of ₹60 lakh which you offered after holding it for greater than two years and the capital good points accrued on it’s ₹25 lakh since you got it for ₹35 lakh. Since you don’t intend to purchase a brand new property instantly, you may’t hold the money for greater than six months with out having to pay tax on it on the rate of 20 %.
So, the opposite possibility is to purchase REC bonds for ₹25 lakh. These bonds will provide curiosity each year, save your capital good points tax and your capital shall be extraordinarily secure in these bonds.
Are there some shortcomings too?
Investing in these bonds is taken into account secure and rational, but it surely has some shortcomings as effectively. Sample this: the curiosity provided on these bonds is barely 5 % which is decrease than even inflation that hovers between 6.5 to 7 % as of now.
The most restrict of funding is ₹50 lakh in a single monetary year. So, in case complete capital good points earned is ₹60 lakh, you can be presupposed to pay tax on the remaining ₹10 lakh.
On the highest of it, the curiosity is given each year, thus depriving the traders of the ability of compounding. Also, curiosity paid is taxable. which additional reduces the online curiosity obtained.
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