NHAI opens fresh issue of 54 EC bonds, should you invest?

The National Highways Authority of India (NHAI) opened its fresh issue of NHAI bond series XIV. SK Chauhan, Manager (F& A), NHAI said, “The size of the issue is Rs 4,000 crores, and the bonds are open until 31 March 2014.”

Who can invest:

Any individuals, Hindu Undivided Family (HUF), approved institution and non-resident Indians, can invest in these bonds provided certain conditions are met. The condition is that only long-term capital gains (LTCG) earned by selling a residential flat or independent house, which you held for at least three years, can be invested in this bond.

[caption id=“attachment_685785” align=“alignleft” width=“380”] One way to save on this tax amount is by investing in bonds specified under section 54 EC of the Income-tax Act. Moneycontrol.com[/caption]

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Why: Keep in mind that when you make long-term capital gains by selling a property you held for three years, you have to pay a 20 percent tax. One way to save on this tax amount is by investing in bonds specified under section 54 EC of the Income-tax Act, like REC bonds and National Highway Authority India bonds, and then you don’t need to pay that 20 percent tax.

Salient features

Investment amount and tenor: You can invest a minimum of Rs 10,000 and a maximum of Rs 50 lakh. The face value is Rs 10,000 per bond and you can buy a maximum of up to 500 bonds. The tenor of the bond is three years from the deemed date of allotment. And, you can redeem the bond only after three years as a bullet payment.

Interest rates: The bond give a coupon rate of 6 percent, payable annually. The interest will be paid on April 1 every year and final interest will be paid at the time of maturity.

Tax: Keep in mind as per the prospects there is no tax deduction at source on the interest paid, but the interest earned is taxable. The interest gets added to your income.

Where can you buy: You can get application forms at all branches of IDBI Bank and Union Bank, and select branches of few more banks like Canara Bank, Axis Bank, ICICI Bank, Yes Bank and HDFC Bank. For more details see here.

Should you invest: When you invest in these bonds you get a benefit of saving 20 percent tax on LTCG. More importantly, this is a fairly risk-free investment and could work well for risk averse investors. If you don’t invest your LTCG in these bonds and you don’t buy another property in the given stipulated time as per IT laws, you will have to pay 20 percent tax on the LTCG amount.

So, if we take into account the indexation benefit, let’s say you made an LTCG of Rs 20 lakh after selling a property. And invest this entire amount in these bonds, you earn 6 percent rate of interest. Alternatively, if you choose to pay 20 percent tax on Rs 20 lakh, which comes to Rs 4 lakh and you can invest the remaining Rs 16 lakh in other instruments for possible better returns but at higher risk. To invest in these bonds or not is your call, but do get in touch with your financial planner before investing.