54EC bonds are attractive investment vehicles because they allow investors to deduct long-term capital gains from their taxes. Other benefits are available with 54EC bonds.
- Interest: On 54EC bonds, interest is taxable. On interest from 54EC bonds, no TDS is deducted, and wealth tax is not applicable.
- 54EC bonds have a five-year lock-in period (beginning in April 2018) and are non-transferable.
- The minimum investment in 54EC bonds is Rs 10,000, while the maximum investment in 54EC bonds in a financial year is Rs 50 lakhs with 500 bonds.
Is the interest on NHAI bonds taxable?
“For any due date between March 20 and September 29, the finance ministry has prolonged it to September 30 due to the Covid 19 pandemic,” said Prakash Hegde, a chartered accountant in Bengaluru. For example, if you sold your home on December 15th and your 6-month due date was in mid-June, your payment would be delayed until September 30th. The bond interest is taxed at your slab rate. The bonds have a 5-year lock-in duration.
Is bond interest tax deductible?
The interest on tax-free bonds is not taxable, according to the Income Tax Act of 1961. This means that, in addition to capital protection and a fixed annual income, you will not have to pay any tax on the income produced from tax-free bonds.
When do capital gain bonds become taxable?
Assume that an immovable property is sold for Rs. 70 lakh after a 42-month long term period from the date of purchase. The indexed acquisition cost is Rs. 46 lakh, while the indexed improvement cost is Rs. 10 lakh. Calculate the taxable capital gain after claiming an exemption in the following two scenarios:
If capital gain bonds are converted into cash before maturity, the amount invested on which a tax exemption was claimed is taxable as long-term capital gain in the year of conversion.
If the bonds are redeemed before their maturity date, say in the financial year 2020-21, then Rs. 8 lakh will be taxable as long-term capital gain in that year.
Is a REC bond tax-exempt?
Tax benefits u/s 10 (15) (iv) (h) of the Income Tax Act, 1961 – interest on these Bonds does not form part of total income REC has launched Tax Free Bonds aggregating Rs.
What bonds are exempt from taxes?
Tax-exempt municipal bonds are divided into two categories based on how the money borrowed is repaid: general obligation bonds and revenue bonds. Bonds, notes, leases, bond funds, mutual funds, trusts, and life insurance are among the tax-exempt investment vehicles.
Is the interest on bonds taxable?
Is the interest on savings bonds taxable? The interest you make on your savings bonds is taxed at the federal level, but not at the state or municipal level. any federal estate, gift, and excise taxes, as well as any state inheritance or estate taxes
Which types of interest are tax-free?
Any sort of interest that was received and credited to an account qualifies as tax-exempt interest income. During the year it was accessible, you can withdraw without penalty. It is also exempt from federal and state taxes.
Municipal bond interest income is tax-exempt interest income. Municipal bonds are tax-free investments issued by states, cities, counties, and the District of Columbia. Income earned from bonds sold by cities under their authority is exempt from state income tax.
Interest on insurance dividends left with the Department of Veterans Affairs, as well as interest on various savings bonds, are instances of tax-free interest income. As a result, if you get interest income from the Treasury, it is taxable at the federal level but not at the state or local level.
Ordinary dividends, capital gains and non-dividend distributions, and undistributed capital gains interest are all included in tax-free mutual funds. Above all, interest received on your IRA, Health Savings Account, Archer or Medical Advantage MSA, or Coverdell education savings account is not included.
You must disclose any taxable and tax-exempt interest on your tax return even if you didn’t obtain Forms 1099-INT or 1099-OID.
What interest income is exempt from taxation?
that specifies the exact amount of bank interest you got for your tax return Technically, there is no minimum amount of income that must be reported; nevertheless, any interest you earn must be disclosed on your tax return. Even if you don’t get a Form 1099-INT, you must declare all interest on your taxes. Because it may affect your tax return, any amount of tax-exempt interest must be disclosed on your income tax return.
Is there a capital gains tax on bonds?
While interest income from municipal bonds is normally tax-free, capital gains from bond sales are subject to federal and state taxes. The difference between the selling price of the bond and the original purchase price of the bond is the short-term or long-term capital gain or loss on a bond sale.
What is the purpose of Section 54EC of the Income Tax Act?
The capital gains on the sale of a long-term capital asset whether an immovable property or shares and stocks are excluded from taxation provided the profit is invested by the taxpayer in ‘long-term defined assets’ within 6 months of the sale, according to Section 54EC. Government notified bonds and securities, such as those issued by the National Highways Authority of India (NHAI) and the Rural Electrification Corporation, are referred to as “long-term defined assets” in this context (REC).
However, you can only deposit a total of Rs. 50 lakh in these bonds. If your total capital gains exceed Rs. 50 lakh, instead of buying bonds under Section 54EC, you may wish to build a house and take advantage of Sections 54 or 54F. However, if you are unable to choose one of the above choices, you will be required to pay LTCG tax on the remaining capital gains.
The bonds purchased with the capital gains amount should be held for at least 5 years by the taxpayer. If you sell the bonds before the end of the 5-year period, the Section 54EC exemption will be revoked, and you will be required to pay LTCG tax on the initial capital gains amount.