Do you want an intelligent means of saving your long term capital gains bonds with a tax deduction and to build up your wealth too in the safest way? Long term capital gains (LTCG) Bonds are a good way to do just that.
LTCG bonds introduced to the Income Tax Act in Section 54EC provide investors to shelter long-term gains in capital on the disposal of assets by investing the gains in designated bonds issued by government-backed organizations. Those bonds are usually issued by such institutions as NHAI (National Highways Authority of India), REC (Rural Electrification Corporation), etc.
Key Features of LTCG Bonds:
Investment Limit: Under 54EC, Limit is maximum 50 lakh in a financial year.
Lock-in Period: 5 Years: During this period, you have your invested amount locked up and therefore you will enjoy disciplined long term savings.
Interest rate: The interest rate is usually fixed to a range of 5% up to 6.5 interest rate per annum, which can be paid either on a yearly basis or on maturity.
Tax Benefits: The capital gains investor in such bonds is not liable to LTCG tax (10% on a gain of over 1 lakh currently). The interest on such bonds is however taxable according to your income bracket.
Risk Factor: These bonds are backed by government entities, and hence they are fairly safe and have minimal risks of default.
Why Choose LTCG Bonds?
In case you have sold a property, shares or mutual funds and have made a lot of long-term capital gains, investing in LTCG bonds will enable you to save a lot of money on taxes. Besides, these bonds offer stable income of interest and save your capital.
Note that, early withdrawal before the 5-year lock-in is not allowed, and therefore, remember to plan your liquidity requirements during the time of investment.
Long Term Capital Gains Bonds are a safe, tax efficient and prudent way of ensuring that your wealth is not lost and also to maximize the tax outgo. Ensure that you look into eligibility, lock-in conditions and interest payout before investing.
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