How do capital gain bonds help in saving tax?

People make lots of investments over their lifetime. They want to invest and save today for a brighter future.

People make lots of investments over their lifetime. They want to invest and save today for a brighter future. Since many unpredictable events may occur in an individual’s life, they must remain financially prepared to face them. They must try to choose as many investment schemes that offer high returns to save enough for emergencies and future expenses. They must also ensure to control their costs and manage funds wisely.

There are two divisions of financial instruments, namely market-linked and fixed-income categories. Market-linked instruments consist of equity shares, mutual funds, etc., whereas fixed income includes government bonds, debentures, fixed deposits, etc. Any financial instrument offering excellent financial leverage to an investor is useful to generate returns on their existing capital instead of remaining unused. Investments in capital gain bonds help save on long-term capital gains tax.

Section 54EC bonds are capital instruments that fall under tax exemptions for an investor. They can invest in these bonds after receiving capital gains from selling a property and exempting tax. These bonds constitute the National Highway Authority of India (NHAI) and the Rural Electrification Corporation (REC). The following are the conditions that investors must meet to be eligible for tax exemption:

  • The investment amount should originate from the capital gains received after selling a property
  • The amount should not exceed INR 50 lakh for individual bonds and INR 1 crore for shared bonds, where each partner has a maximum limit of INR 50 lakh
  • Investments in NHAI and REC bonds should start within six months from the date of sale of the property or before filing for income tax returns

Sovereign gold bonds (SGB) were launched by the Government of India in 2015 to provide people with an opportunity to invest in gold as an alternative to owning gold in its physical form. These bonds are bought for a particular monetary value and backed by an equal amount of physical gold.

The RBI has allowed commercial banks, designated post offices, recognized stock exchanges like the National Stock Exchange (NSE) of India Ltd. and Bombay Stock Exchange (BSE), and lastly, Stock Holding Corporation of India Ltd. (SHCIL), to issue sovereign gold bonds to the public. Bonds sold at NSE and BSE can be direct or through agents.

The following are the steps to invest in these bonds:

  • To invest through banks, investors will need to log in to their net banking account
  • Click on the SGB option available on the bank’s home page or under the list of services they provide
  • Since the user is KYC compliant, they do not get a pre-filled form depending on the bank. The application forms for gold bond investment ask for their name, address, guardian’s name in case of minors, PAN number, and so on.
  • Entering the nomination details is optional

All investors interested in investing in these bonds should enter the number of units to buy depending upon the price declared by the RBI