The benefit under section 54EC can be availed of
only if there is an income from a capital asset, being long-term in nature.
Long-term capital gains are the
profit that a person makes when he sells any capital asset (for example, any
immovable property, jewellery or shares) which he has held for a period
exceeding three years. An exception is his holding of shares in which the
holding period has been fixed at one year.
Any person (including NRI out of NRO account on a
non-repatriable basis) and Hindu undivided family (HUF), through its Karta, can
make investments (not exceeding Rs 50 lakh in a given financial year) in the two bonds notified by the
Government of India. In case only part investment is made, the amount of deduction gets reduced in
proportion to the investment.
The two corporations which have been notified by
the Government of India as being eligible for issue of these bonds are (a) National Highway
Authority of India (NHAI) and (b) Rural Electrification Corporation (REC).
These bonds carry a lower rate of interest as compared to other investment options, such as Public Provident Fund, bank fixed
deposits and National Savings
Certificates, among others. The main reason for this lower
rate of interest is that the investor gets the benefit
of reducing his income tax
liability upon investing in these bonds, if he has long-term
capital gains. These bonds are issued for a fixed
maturity period of three years. These bonds have been rated as “AAA/Stable” by
Credit Rating and Information
Services of India (CRISIL).
The investment has to be made within six months
from the date of the transfer in order to be eligible
for claiming the benefit of deduction under section 54EC. The face value of
these bonds is Rs 10,000, and the full amount has to be paid upfront along with
the application.
The maximum amount that a person can invest in
these bonds (NHAI and REC combined) in any financial
year is Rs 50 lakh. If a person has long-term capital
gains which have accrued to him after 1 October of any year, and
the amount of capital gains
exceed Rs 50 lakh, he can split his investment by investing Rs 50 lakh up to 31
March of the following year and the balance on 1 April of that year. The balance
amount in this case, however, should not exceed Rs 50 lakh. By doing this, he
can have the benefit of investment of up to Rs 1 crore. Joint applications shall
also be included for the purposes of this limit.
The deemed date of allotment is the last date of
the month in which the application is made and the
amount is realised by the issuer.
These bonds can be held in dematerialised form or
in physical form. The bonds can be held under a single name or joint names. The
facility for nomination is also available on these bonds. These bonds are
non-transferable, non-negotiable and cannot be offered as security for any loan
or advance. However, transmission of the bonds to legal heirs in case of death
of the bondholder is allowed under the rules.
The NHAI bonds carry interest at 6.25 per cent
per annum, payable annually on 31 March every year. REC bonds carry interest at
5.75 per cent per annum, payable annually on 30 June every year. The interest
earned on these bonds is fully taxable under the head “Income from Other
Sources”. No tax at source would be deducted from the interest on these bonds.
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