NHAI 54EC Bonds issue 2021-22: Efficient way to save taxation on LTCG
National Highways Authority of India (NHAI) is a statutory body established under National Highways Authority of India Act, 1988. These bonds are the best way to save long-term capital gains tax on the sale of any long-term capital asset. Section 54EC does not allow exemption on short-term capital gains. The highlights of NHAI Bonds for the year 2021-2022 are given below:
Credit rating: Highest credit ratings i.e., CARE AAA/stable by CARE Ltd, CRISIL Ltd AAA/stable by CRISIL Ltd, ICRA AAA/stable by ICRA Ltd and IND AAA/stable of India Ratings (Fitch).
Open for issue: The issue is opened w.e.f. April 1, 2021.
Closure of issue: The issue opened on-tap basis and will close on March 31, 2022, at the close of the banking hours or on achieving of ceiling limit of Rs 5,000 crore without any further notice or at a date as may be decided by NHAI at its absolute discretion.
Face value: Rs 10,000 per bond
Issue price: Rs 10,000 per bond
Minimum application size: One bond of Rs 10,000
Maximum application size: 500 bonds of Rs 10,000 each (Rs 50,00,000) subject to the fulfilment of other conditions as specified in Income Tax Act, 1961.
Size of issue: Rs 5,000 crore
Mode of subscription: 100 per cent on application.
Deemed date of allotment: Last day of the month during which the application amount has been cleared and credited to NHAI’s collection amount.
Transferability: The bonds are non-transferable, non-negotiable and cannot be offered as a security for any loan or advance.
Maturity: At par, 5 years from the deemed date of allotment.
Interest payment: Annually on April 1 and final interest at the time of maturity.
Coupon rate: Payable 5 per cent annually.
Redemption: Bullet, at the time of maturity i.e., 5 years (bullet redemption is repayment of debt in one lump sum at the end of the maturity period).
Collecting banks: The application can be submitted at any branch of Union Bank of India, HDFC Bank, and IndusInd Bank as well as specified branches of Axis Bank, Canara Bank, ICICI Bank, and IDBI Bank Ltd as listed in Information Memorandum dated April 1, 2021.
Tax benefits u/s 54EC
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Particulars
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Section 54EC
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Assets transferred
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Any long-term capital asset
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Assessee
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Any assessee
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Holding period of original assets
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Long-term
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Asset to be acquired
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Bonds of NHAI or REC or any notified bond
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Time limit for acquisition
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Within 6 months from the date of transfer
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Quantum
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The amount of gains, or the cost of the new asset, whichever is lower.
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Other conditions
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Maximum investment during any financial year cannot exceed Rs 50 lakh. Against capital gain of one year, maximum deduction possible is Rs 50 lakh.
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For instance,
Mr Yadav purchased a plot for Rs 3,40,000 on April 30, 2008. He sold the same for Rs 70 lakh on April 28, 2021. He invested Rs 30 lakh in bonds of NHAI on September 30, 2021. What will be capital gains in this case? Let’s have a look:
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Particulars
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Amount (Rs)
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Sale consideration
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70,00,000
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Less: Indexed cost of acquisition (cost of acquisition *index for the year of sale/index for the year of purchase)
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7,86,715 (3,40,000*317/137)
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Long-term capital gain
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62,13,284
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Less: Investment in NHAI bonds u/s 54EC
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30,00,000
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Taxable long-term capital gain
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32,13,284
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Therefore, tax on long-term capital gains will be at the rate of 20 per cent in the above case where Mr Yadav invested in NHAI bonds while tax liability will be Rs 6,42,656. Conversely, if Mr Yadav wouldn’t have invested in NHAI bonds, his tax liability would have been Rs 12,42,656. With this, we can see that Mr Yadav saved Rs 6 lakh of tax on Long-Term Capital Gains by investing in NHAI bonds.