Normally the tax imposed on any long term capital gain through sale of asset is 20 per cent of the consideration. As such the tax imposed is a huge amount.
As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would taxable unless specifically exempted.
The Government has however provided certain exceptions for paying capital gains tax like investing in some particular bonds.
Type of capital gains that can be saved:
One cannot save short-term capital gains tax but one can save long-term capital gains. If someone sells a residential house and invest that capital gain in another one, he can easily save tax. But he has to invest that capital gain within the following two years in another case of purchase of an asset which has to be a residential one and within three years in case of construction of a residential house.
If one fails to purchase the property before filling Income Tax Return, he requires transferring the money in capital gain account scheme (CGAS). If someone is not willing to purchase a residential property, he can invest money in capital gains bond scheme. If he wants to invest Rs 50 lakh in one financial year, he has to invest the same within six months of the sale.
Provisions of Section 54EC of the Act:
As provided in Section 54EC of the Income Tax Act, 1961 any capital gain arising out of the transfer of any long term capital asset where the assessee has within six months of the transfer invested the whole or any fraction of the capital gains in some specified bonds, is exempted from tax.
Investing in these bonds is a good option for any financial planner.
Conditions required for availing the exemption:
Any long term capital gains arising out of sale of of any capital asset are exempted from tax under section 54EC of the Act if the following conditions are fulfilled:
1. The capital gain is invested within 6 months of transfer in Capital Gain Bonds;
2. The assessee holds the investment for a period of minimum 3 years;
3. To avail this exemption, the bonds cannot be transferred or cannot be transformed into money within 3 years from date of its acquiring failing which one is not entitled to avail this benefit ;
4. If the amount invested in bonds is less than the capital gain, the concerned part of the capital gains is only exempted from tax.
Maximum investment limit:
The maximum investment limit of the investment in these bonds is Rs. 50 Lakhs for Financial Year.
Rate of interest in case of these bonds:
The interest rate for these types of bonds is 6% per year.