How to Buy Capital Gain Bonds Online?

How to Buy Capital Gain Bonds Online

Suppose you are looking for a way to invest in capital gain bonds. This article helps you to find the right path to investing in Bonds. Let’s dive deep.

Capital gain bonds are the best choice for taxpayers. Taxpayers can save tax by investing their long-term capital gain on LTCG and earning investment interest. The income tax act contains several provisions to assure that relief provides to the assessee on the capital they gained or the profits earned by them.

Suppose the profits invested in specified bonds, section 54EC of the Income Tax Act looks after providing relief to the assessee on the capital gains invested. The bonds specified in this section include NHAI, REC, PFC and IRFC. These bonds are referred to as capital gain bonds and are instruments for fixed income.

Since the government backs these bonds, investors’ risk of buying such bonds reduces significantly. Now let’s move to the most critical question- how to buy capital gain bonds online? But before that, let’s learn more about capital gain bonds.

Definition of Section 54EC of the Income Tax Act About Bonds or Capital Gain

Section 54EC of the Income Tax Act, also known as Capital Gain Bonds, are investments that will help you save tax. The main purpose behind the Capital Gain Bond was to collect the greater interest of the people who invest in long-term infrastructure projects that government-owned PSUs. In return, the investors offer tax concessions, and the investors are allowed to claim tax exemption on capital gains in this section.

What Are the Benefits of Investing in Capital Gain Bonds?

Security

PSUs are the issuer of all 54EC bonds, and the government of India is the leading stakeholder in these types of bonds. Timely interest payments assure the bond investors and eliminate the risk for the investors.

Liquidity

The liquidity option is unavailable on the CG bond investment as the capital gain bonds are usually non-transferable and have a fixed tenure of 5 years.

Returns

The interest rate for the Capital gain bond is 5%, which is an instrument for fixed income and is used as a medium to exempt the long-term capital gain tax. On the bond investment, the TDS gets exempt. The tax is levied only on the total bond investment interest earned by the investor.

Is Capital Gains Tax exempted?

The profit earned on the sale of a capital asset, e.g. Land/Building)is held over some time and is termed Capital Gain. It is an economic concept. When the asset’s sale price is higher than the purchase price, it is said to be profit or gain, which calculates as the difference between the two. The investors are required to pay taxes in the year the capital asset, also known as Capital Gains Tax.

Eligibility and Exemption of the 54EC Bonds

Investing in Capital Gain Bonds is to reduce the tax liability arising from the sale of immovable capital assets like land or buildings. Thus, if the investor invested their gains in these bonds, which followed certain conditions, they need not pay capital gains tax. The conditions are:

  • The exemption can claim on profits gained from property sales which might be land and buildings, both residential and commercial.
  • To qualify for the exemption, the investors must invest in Capital Gain Bonds within six months of the capital asset sale.
  • The maximum exemption and investment limit is INR 50 lacs in a financial year.
  • There is a fixed tenure of 5 years from the investment date for 54EC bonds. During this period, the investors are not allowed to sell or redeem the bonds for five years if they want to be eligible for the tax exemption.

How to Buy Capital Gain Bonds Online?

Capital Gain Bonds are from either the bond-authorised brokers or NHAI/REC. There is no provision for buying these bonds online, and a physical visit of the person in the office is necessary for filling out its form. After you buy these bonds- You can hold them in physical or Demat form. However, there is no mechanism for you to purchase these bonds online.

What Are the Steps Necessary to Invest in Capital Gain Bonds?

You can not find capital gain bonds on the stock exchange, which come directly from the issuer either in physical or Demat form. An applicant must follow the given steps:

Step 1: Select the ‘direct’ option on the official website of the respective Bond.

  • National Highway Authority of India
  • Power Finance Corporation Limited
  • Indian Railway Finance Corporation Limited
  • Rural Electrification Corporation Limited

Step 2: Enter numbers accordingly based on the number of forms you wish to download. Download the form after entering the captcha code. Now, print the form afterwards.

Step 3: The investors must affix a demand draft or account payee cheque and present the same along with the other required details at the specified banks. Banks authorised to carry out this activity include Axis Bank, HDFC Bank, State Bank of India, IDBI Bank, IndusInd Bank etc.

What is the Denomination of a Bond Certificate?

A consolidated letter of Allotment/Bond Certificate for the Bonds allotted to the subscribers by the NHAI. But, if the application is in the Demat form, then an allotment letter will issue to the subscriber, and the Bonds will get credited to the subscriber’s account.

At the plea of the Bondholder, the Authority will split such Bond Certificate into smaller denominations subject to a minimum of one Bond in consideration of consolidated Bond Certificates. If the plea for splitting is there, it should get accompanied by the surrender of the authentic Bond Certificates, which the Authority would treat as revoked.

Why Investing in Capital Gains Bonds Is a Profitable Idea?

The calculations above make it clear how much the investor must make from other assets to compare it to bond investments.

The asset allocation strategy used to achieve the required ROI might not appear to be all that tough.

However, as shares and mutual funds are market-linked items rather than securities with set returns, a significant amount of risk is associated with the whole transaction.

Let’s say someone accepts the inherent danger and is at ease with the volatility. If not, capital gain bonds would be a good alternative to paying taxes and investing.

When investing money for a very long time horizon, it is sometimes preferable to incur the risk, but when the objective is close by, and you have enough money to achieve it, it is sometimes not good to do so. So, one must make an appropriate decision.

Which Are Better, Tax-Free Bonds or Tax-Free Government Securities?

For many investors in India, paying taxes on the interest income from long- or short-term investments is a problem. The choice to diversify your holdings can help spread out risks and benefits. Tax-free government securities are a reliable tool for a risk-free investment. The majority of HNI consumers who are high taxpayers prefer tax-free government securities.

Is it Possible to Make Tax-Free Investments in India?

Tax-free bonds include a trading system that enables trading in physical or electronic form through a Demat account. But purchasing such tax-free bonds is straightforward and offers more benefits. When choosing such tax-free bonds, it is important to remember that the subscription period is open for a set amount of time.

You must provide your KYC information, including your Aadhar card, PAN, passport, and voter ID credentials, for verification to trade in tax-free bonds. Following verification, you have unrestricted access to trade using your Demat account. As a result, investing in tax-free bonds is comparable to trading in stock market shares.

How Can You Redeem Your Tax-Free Bonds?

Tax-exempt government bond redemption processes are fairly straightforward and subject to the term’s conclusion. Tax-exempt bonds are only accessible for exchange trading with other investors, and there is no opportunity to call them before 10–20 years. Tax-exempt investments have significantly increased in India in recent years, and the tax-exempt Bond’s original investor cannot purchase it back.

Section 112 of the Income Tax Act of 1961 imposes taxes on any gains realised on bonds exempt from taxation after they sell. Therefore, the capital gains made from selling these tax-exempt bonds a year ago are taxable under the investor’s income tax records.

Conclusion

When selling real estate, capital gains bonds uses to reduce long-term capital gains taxes (residential or non-residential). Investments in capital gains bonds make to reduce long-term capital gains tax (LTCG). As a result, these bonds are also known as capital gains (CG) bonds.

A fixed-income financial product is a capital gains bond. The Government of India governs the 54EC Capital Gains Notes issued to the general public and investors. So, if someone asks you how to buy capital gain bonds online? You can reply with No. You can not invest in these bonds online, and you need to be physically present in the office to apply.

FAQs

According to Section 54EC of the IT Act, what bonds are exempt?

Bonds issued by the Power Finance Corporation Limited (PFC Bonds), Rural Electrification Corporation Limited (REC), National Highway Authority of India (NHAI), and Indian Railway Finance Corporation Limited (IRFC) are qualified for exemption under Section 54EC of the IT Act.

How long is the capital gains bonds' lock-in period?

For capital gains bonds, the block term is five years.

What grade of capital gains bonds of the organisation issue?

The capital gains bonds NHAI, PFC, REC, and IRFC, have issued are rated AAA.

Can Indians who aren't residents benefit from exemptions provided by EC Section 54?

Non-residents may request the Section 54EC exemption if the land or structures are in India.

How much money may a person put in capital gains bonds?

A Capital Gains Bond can purchase for as little as 10,000 rupees and as much as 50 lakhs rupees. Each Bond has a par value of 10,000 rupees.