Before understanding Capital Gain Bonds one must have a clear understanding on Capital Gain. Capital Gains are of two types long-term capital gain and short term capital gain.
For a short term, capital gain any property which will be sold before 3 years from the date when it was bought then the gain from that property comes under the category of Short-term Capital Gain. Also, Short term capital gains are totally taxable as per income tax slab rate.
Long term Capital Gain any property which is held for 3 years or more,then the gain earned by the person is termed as long term capital gain.Long term Capital gains are taxable at the rate of 20%.
Note- While calculating gains on the property sale, we have to consider the indexation which will be calculated as per the cost inflation index.
It must be coming to your mind that if the gain earned from the property even after 3 years is taxable, then how can we make the gains tax free.
To make long term capital gain tax free, the government has launched Capital Gain Bonds for general public to invest in.
WHAT ARE OTHER FEATURES OF CAPITAL GAIN BONDS?
- For money to become tax free it should be invested within 6 months after selling the property
- The money invested in these bonds gets locked for tenure of 3 years and after the maturity it becomes tax free
- Investor not only gets the advantage of tax free money but also earns a fixed return of 6% annually from these bonds
- The issuing price or face value of these bonds is INR 10000
- Minimum amount that can be invested in these bonds is INR 20000
- Maximum amount that can be invested in these bonds is INR
- Interest is payable in form of Demand Drafts or at par cheques or it can be directly credited to your account
- Capital Gain bonds are 100% risk free i.e. no matter what the market condition is, the amount invested remains 100% safe
- These bonds are non-transferrable
WHAT ARE THE TYPES OF CAPITAL GAIN BONDS AVAILABLE IN MARKET?
Person looking to invest in Capital Gain bonds does not have much option available to them. As there are two types of Capital Gain bonds that are available in market which are as follows:
- REC (Rural Electrification Corporation Limited)
- NHAI (National Highways Authority of India)
WHAT ARE THE DOCUMENTS REQUIRED WHILE APPLYING FOR CAPITAL GAIN BONDS?
- Self-attested address proof and PAN Card of applicant
- One Cancel Cheque copy
- Demand Draft or Cheque drawn in favour of the <Capital Gain bond selected>
- Bonds are issued on First come First Serve Basis
- Application needs to be sent to the address of the chosen Capital Gain Office or you can also have an option of submitting the application in the listed bank
- Acknowledgement copy provided will be useful for your taxation purpose
- Bond Certificate is issued within 2 months of the deemed allotment date
- It comes under Section 54EC