Budget 2018: Lock money into 54EC bonds for 2 more years to escape LTCG tax

Budget 2018 has proposed to increase holding period of bonds under section 54EC from three years to five years. In addition to that, the budget has also proposed to restrict the definition of capital asset to only land and building under the said section.

Currently, as per section 54EC of the Income-tax Act, exemption from long-term capital gains tax are available if the gains are invested in the specified asset of the section within six month of the date of sale.

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Pinky Khanna, tax director, EY India says, “This means that tax on capital gains arising from the sale of long term capital assets such as plants, machinery, bonds or unlisted shares etc. will now no longer be exempt under the said section except for land and building.”

Most people, in order to avoid the tax on LTCG arising from sale of their house, invest in the bonds of Rural Electrification Corporation (REC) or National Highways Authority of India (NHAI) or any other bonds as notified by the Central Government. The maximum limit for investing in these bonds is Rs 50 lakh. Currently, the interest paid on these bonds 5.25 per cent per annum.

If passed by the parliament, the above mentioned bonds will be issued for five years starting from April 1, 2018 and benefit will be availed from the assessment year 2019-20 and in the subsequent years.