If you have sold a property and made a profit from the sale – you are liable for capital gains taxes. You can minimize or avoid the tax liability by investing the capital gains, into Section 54 EC bonds, issued by the National Highway Authority of India or Rural Electrification Bonds.
Use the following formula, to determine the amount to invest, to eliminate taxes.
| Purchase Price : A | Rs |
| Sale Price : B | Rs |
| Inflation Index in the year of purchase (eg. if the unit was purchased during 1990-1991, then the Index is 182) : C | |
| Inflation index in the year of sale : D | |
| Inflation Adjusted Purchase Price : E = A * D/C | |
| Gains : F=B - E | Rs |
| Taxes with indexation : G = 0.20 * F | Rs |
The amount (Rs. G) above is the amount, that you owe in taxes. You can reduce the tax liability to Zero, by investing the capital gains (E) , into three year bonds from National Highway Authority of India or Rural Electrification Corporation. The amount must be invested within six months of sale of the property.
These bonds currently yield 6% and are rated AAA by CRISIL. The interest on the bonds is taxed. Further, you can invest a maximum of Rs 50 lakhs, in a given year.
NHAI Series XI Application Form (Details)
REC Capital Gains Tax Exemption Bonds Series VIII Application Form
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