Exemption of Long term capital gains invested in Capital gains bonds
1. Tax Exemption :
.01 Long Term Capital Gains [ LTCG ] arising from sale of any movable or immovable asset are exempt if the same are invested in Capital Gains Bonds within a period of six months of the transfer.
.02 Entire LTCG upto INR 5 mn will be exempt from tax if the same are invested in Capital Gains Bonds.
.03 If part of LTCG are invested in Capital Gains Bonds exemption will be granted on prorata basis.
.04 However if the LTCG total to more than INR 5 mn than the exemption is restricted to INR 5 mn only and the balance of LTCG are not eligible of tax exemption under this scheme.
.05 Presently such Capital Gains Bonds are issued by National Highway Authority of India and Rural Electrification Corporation [ REC ]
2. Conditions :
.01 The Capital Gains Bonds should be held for a minimum period of three years.
.02 The exemption has a ceiling of INR 5 mn.
.03 The investment is to be made within six months of transfer.
3. Contravention :
.01 If the Capital Gains Bonds are sold within the period of three years, then the LTCG exempted earlier will be taxed in the year of such sale.
.02 Availing a loan or mortgage of said Bonds will also be treated as sale and LTCG exempt earlier will be taxed upon such event.
4. Capital Gains - Computation :
.01 While calculating the LTCG, indexed cost will replace the actual cost.
.02 Indexed cost is computed increasing the purchase price by notified cost of living index for each year of holding.
.03 LTCG are arrived at by deducting such indexed cost from the sale price.
.04 In case of immovable properties, sale price is to be replaced by the valuation of the property determined by the State Registrar for stamp duty payable by the buyer if the same is higher.
5. Tax Rates :
.01 LTCG of listed equity shares and equity schemes of mutual funds subject to security transaction tax (STT) are totally exempt from tax.
.02 LTCG from securities listed in India, Units of Indian Mutual Funds other than equity funds and Zero Coupon Bonds shall be tax at 20% after indexation or tax at 10% without indexation.
.03 Other LTCG are taxed at 20% after indexation.
.04 STCG of equity shares and equity schemes of Mutual Funds subjected to STT are taxed at 15%.
.05 STCG of other assets are taxed at normal rates of applicable tax on total income.
6. Capital Gains - Meaning :
.01 Profits and gains earned upon sale of any immovable or movable assets are taxed under the head of "Capital Gains" under the Income Tax Act, 1961.
.02 Such gains are classified as "Long Term Capital Gains (LTCG)" if the assets are held for a period of more than 36 months and as "Short Term Capital Gains (STCG ) if held for lesser period.
.03 Gains of Shares of a Company or equity , debt or balanced schemes of mutual funds are defined as LTCG if the same are held for more than 12 months.
7. Disadvantage NRIs :
.01 Non Resident are at a disadvantage as against residents as re: LTCG of all assets or STCG of listed shares or Mutual Fund Units as the basic threshold exemption limit is not deductible in case non-residents.
.02 Thus a non-resident will be paying on gross amount of LTCG including the basic threshold exempt limit of INR 2,00,000.
.03 And as such entire LTCG will be taxed at 20% or 10% as the case may be and STCG of listed shares or Mutual Funds Units will be taxed at 15% from the 1st Rupee gain.