Monday, July 27, 2009

NHAI, REC bonds hit by realty slump

With real estate valuations falling, the rush at the few remaining counters selling capital gains tax-exempt bonds is tapering off.

The National Highways Authority of India (NHAI and Rural Electrification Corporation Limited (REC), the two remaining issuers of such bonds, have mopped Rs 820 crore so far in the current financial year. NHAI has raised Rs 150 crore against the Rs 4,000-crore target for this fiscal, while REC, which opened the issue in April, has raised Rs 670 crore against a target of Rs 2,500 crore.

Under the income tax law, one can save on payment of capital gains tax if the amount is used for repurchase of property within a 12-month period.

Alternatively, capital gains tax can be avoided by investing in bonds issued by NHAI and REC.

The bonds are popularly known as 54 EC bonds (after Section 54EC of the Income Tax Act, 1961).

Earlier, entities such as the National Housing Bank were also allowed to issue these bonds. But a few years ago, the government reduced the number of isuuers.

In addition, it capped the maximum amount that could be invested in these bonds in order to limit the benefit to individuals.

Further, the amount of bond issuance was lowered to allow the government to raise revenue during the real estate boom.
To read more, please, visit - Business Standard

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