Capital Gain Bonds
The amount of capital gains made by a tax paying individual or entity (after deducting the purchase/transaction costs and adjusting for indexation) can be invested in notified bonds under section 54 EC. These bonds are called Capital Gains Tax Savings Bond. The minimum holding period is 3 years. Capital gains savings bonds are those issued by the following institutions: REC & NHAI
Investors should ensure that these bonds are not transferred or converted within a period of 3 years from the date of acquisition. In such an event gains would be taxable.
When a property is sold and a long-term capital gains liability arises, the assessee has an option to avoid it by investing the capital gains in another property within the specified time duration.
The other option available to him to avoid paying tax is by investing the requisite sum in capital gains bonds within a period of 6 months from date of transfer.
These bonds have to be held for a period of 3 years and no loan, mortgage or any encumbrances should be created on these bonds. However the interest on these bonds is taxable.