Investors who have capital gains, have a variety of investment avenues, wherein they can park their capital gains. We explore below the main investment products at the investor's disposal for offsetting capital gains.
What is capital gains?
Capital gains means any profits or gains from the transfer of a capital asset (fixed asset, jewelry, shares and mutual fund units).
An investor has to pay short-term capital gains tax (on asset held for less than 12 months) at 20% or 30% depending on his tax bracket. Long-term capital gains (assets held for more than 12 months, except property which attracts long-term capital gains if its held for more than 36 months) are taxable at 10% flat or unless he decides to exercise the indexation benefit in which case it is taxable at 20 per cent.
Little to choose fromÂ…
| Particulars | NHB | REC | SIDBI |
| Min. Investment (Rs) | 10,000 | 100,000 | 10,000 |
| Coupon Rate (%) | 5.10 | 5.15 | 5.00 |
| Tenor | 5 yrs with put & call option after 3 yrs |
5 yrs with put option after 3 yrs |
5 yrs with put & call option after 3 yrs |
| Rating | AAA | AAA | AAA |
However, an investor can save capital gains tax under section 54EC by investing in any of these three bonds, National Housing Bank, REC (Rural Electrification Corporation) and SIDBI Capital. But the investment has to be made within six months from the transfer of the capital asset.
As is evident from the table, there is little to choose from. All three instruments have more or less similar traits as far as the tenor and rating is concerned.
REC has a higher coupon rate, but so is its minimum investment. Investors with less than Rs 100,000 long-term capital gains are compelled to consider NHB and SIDBI bonds, while investors with long-term capital gains exceeding Rs 100,000 are better off investing in REC.
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