Nhai tax free bonds coupon rate


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An illustration will throw more light on this. Suppose, a person sold land or building or both and earned long term capital gains of Rs 1 lakh from such sale. If this capital gain was invested in NHAI bonds, the bonds would entitle the person to interest payment coupon of 5. The bonds would mature and the person would get his principal of Rs 1 lakh back at the end of 5 years.

The effective investment for such a person would be Rs 70, assuming the person is in the 30 per cent tax slab. The interest income from these bonds is subject to tax at the slab rate at which the person is taxed.

The post-tax internal rate of return IRR for such a person works out to almost Therefore, unless such a person can find alternative avenues for generating post-tax returns in excess of Also, not only the returns, the AAA credit making also makes the bonds attractive. However, the interest continues to be subject to tax in the hands of the assessee. Over time, the scope of Section 54EC bonds have been narrowed down with the most recent one being the limitation introduced by the Finance Act The biggest narrowing of scope was done by the Finance Act Finance Act limited the maximum investment that an assessee could make in such bonds to Rs 50 lakh and restricted the exemption to only bonds issued by NHAI and REC.

All About Tax Free Bonds In India - Goodreturns

Time and again the government has indicated its intent to phase out deductions and rationalise tax rates. Whether or not the proposed new Direct Tax Code materialises and whether or not tax rates are rationalised, signals from the government clearly indicate that phasing out exemptions is one of their priority areas. Could Section 54EC then become next fall guy? While it is difficult to answer this question, it definitely makes sense to take advantage of the benefits offered by this section, as long as it lasts. This exemption is presently available for long term capital gains arising only from the transfer of land or building or both.

The condition is that such gains are invested in notified bonds within six months from the date of transfer the long term capital assets. The bonds have to be held for a minimum of 5 years.

54EC Bonds

The Finance Act made two significant changes to the benefits offered by Section 54EC--it limited the scope of exemption to capital gains arising only from land or building or both and increased the holding period of the notified bonds to 5 years. Prior to the Finance Act amendment, Section 54EC exempted capital gains arising from the transfer of any long term capital asset, and the holding period of the notified bonds was a minimum of 3 years to qualify for exemption.

Although the Section 54EC bonds are perceived as offering a low interest rate, this is not the true case. An illustration will throw more light on this.

NHAI has already sold Rs 29,000 crore of bonds to top institutional investors.

Suppose, a person sold land or building or both and earned long term capital gains of Rs 1 lakh from such sale. If this capital gain was invested in NHAI bonds, the bonds would entitle the person to interest payment coupon of 5.


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The bonds would mature and the person would get his principal of Rs 1 lakh back at the end of 5 years. The effective investment for such a person would be Rs 70, assuming the person is in the 30 per cent tax slab.


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  4. The interest income from these bonds is subject to tax at the slab rate at which the person is taxed. The post-tax internal rate of return IRR for such a person works out to almost Therefore, unless such a person can find alternative avenues for generating post-tax returns in excess of Also, not only the returns, the AAA credit making also makes the bonds attractive. However, the interest continues to be subject to tax in the hands of the assessee.

    Over time, the scope of Section 54EC bonds have been narrowed down with the most recent one being the limitation introduced by the Finance Act