Need help in purchasing Capital Gains Bond

Personal finance
1

Hi All,

I need some help in buying the capital gains bond or 54EC bonds from REC, PFC, NHAI & IRFC for tax exemption on sale of property.

I need to know how to apply for the bond, what’s the process and other general details.

If anyone can share their personal experience with these bonds, it would be of great help.

Thanks

1 Like
2

@ShubhS9 Can we buy it from any of the Zerodha platforms?

3

Capital gains bonds don’t trade. You can buy them from GoldenPi.
As for corporate bonds, you can purchase the same from Kite. Please read more here.

4

Thank you for the reply.
I am aware that these bonds are not listed on the exchange.
And since the amount is significant, I want to invest it via a reputed bank or broker.

5

This is how I bought it 3 years ago. Not sure if anything has changed. In any case this is what happened.

  1. Went to Icici Direct office and told them I wanted to buy the bond and it should be parked in my demat account. There is a form to be filled and did the formalities. They in turn submitted the form to HDFC Bank. At that time, HDFC was one of the bank for REC.
  2. After few weeks, I got a courier with the physical certificiate and on enquiry I was told that since my demat account was in Joint name, REC could not record the REC bond to my demat account hence they issued the physical certificate.
  3. Interest is paid directly to the designated bank account annually and I am told on maturity, the principal will also be credited to the account and there is no need to submit the physical certificate.
  4. Submitted the acknowledgement of application form to the CA for filing tax returns,

In a nutshell, Most of the banks will help you in subscribing for the Bond. HDFC is for sure. Just go there and they will help you out from start to end.

3 Likes
6

The bonds purchased through Golden PI , will be visible in your Zerodha demat account.

1 Like
7

Thank you @neha1101 for telling your experience.

Just had to clear my doubts so please bear with me… :slight_smile:

I have my bank account in SBI where the proceeds from the sale of land has arrived. I asked them regarding purchasing the capital gains bond but they told that they cannot help me there. :confused:
Although, I can see that we can buy the bond using SBI securities (SBI Securities)…

Now, I have my demat account in CDSL and the broker is Zerodha.

Q-1 Can I just go to HDFC or ICICI without having a bank account with them, and they will still help me out in buying these bonds and crediting it to my demat account or delivering a physical certificate of the bond? If that’s the case, I assume I will have to submit an RTGS form in the name of the bond issuing company along with the physical form. Right?

Q-2 Interest will be paid out to my SBI account annually and no TDS is deducted. It will be treated as income from other sources and tax will be computed as per my salary and other things. Right?

Q-3 After the end of 5 years, the principal amount that I will receive will be tax free? And I am free to deploy this principal amount as per my wish, no restrictions there?

Thank you again and really appreciate you for helping me out.

3 Likes
8

Q 1. Very surprising that sbi refused. This is good commission for them. My funds was with icici bank and the application along with a cheque for the investment amount was given by way of cheque. So there is no need to have an account. The intention of me going to the broker was because i thought follow up would be easier. But in reality there was no need. Since i went to icici direct they helped me filling up the form etc. it is a very simple form.
Banks run after this business as it is commission or achieving some target so it is very surprising. My suggestion is just go to hdfc bank or call them before going there. I think you may need to give a cancelled cheque so that rec will get ac no, ifsc code etc. there is a nomination field as well

Q2. Interest will be credited directly to the nominated account number mentioned in the application form. There will be no tds on this interest credit. However you need to show this as income and will be taxed as per slab rate. I show this amount every year in my returns

Q3. Yes. The principle amount will be tax free. However interest or income will be taxed

Disl. These are my views. Please do check with hdfc or just check the net for more details.

I just cant get over the fact that sbi refused to accept the application for this bond. Was this a small branch. Better go to private banks.
If i were you. I will only go through a bank, irrespective of the troubles and will never use any app or anything. Better submit it through a bank who will give you an acknowledgement.

If u have a bigger sbi branch nearby i am sure they will assist. Confounding. They said no. When u go carry ur cheque book pan card etc

All the best.

3 Likes
9

It is a big branch actually, but yes its in a Tier-2 city so maybe they didn’t get any such request yet. And they were not even aware if there is something like these bonds… They were trying to pitch me their Cap Gain Account in which I don’t want to put the profits since after two years you have to spend this amount in buying a land or residential property only.
And yes completely agree with you that we shouldn’t be using any app or website for buying such things, its better to get this through a bank and get an acknowledgement.

10

Hey, do check this out once…
This is a point i have seen in many articles. Some say that returns from bonds are so low, paying 20% tax and investing the rest in MFs (especially if one is in the 30% tax bracket) “should” ideally beat bond returns.

12

I actually wanted to say this yesterday but decided not to.
Most of the individuals do not want to pay tax because 20 percent is a lot. Instead they block their money in these bonds which give a return of 5.5 percent per annum pre tax. Nobody considers the opportunity cost of these funds. Physiologically you just feel you are saving tax amount. But in reality you are losing out on the opportunity of getting higher returns else where.
I had once quantified the actually benefit of these bonds. When the lock in was 3 years, it made little sense to block your money here. But once the limit was extended to 5 years, it makes absolutely no sense.
I will try to find these working and post over here.

Edit: I now opened the article and yeah whatever I wanted to show in my calculation is almost covered.

13

I agree with you and @sufimonks. Have read various articles that paying the tax and investing this money elsewhere would be a better option.
But lets say the person has only interest income and dividend income. And after getting a 5% interest of 2.5lk per annum on these bonds the total income is still less than 7lk per annum in the next FY. Will it still make sense to pay the 20.6% tax on the gains and invest it in the markets?

14

No. My calculation was for one who is in 30 percent tax bracket.

1 Like
15

I get you. It would vary from person to person. What is being referred to in the article is the opportunity cost of investing in low interest bearing bonds vis-a-vis potential gains of MFs… It is your call - whatever you might be comfortable doing… You do you. Afterall nobody can predict the markets… I shared the link only as a nice-to-read & know kinda stuff. Go for the bonds… :+1:

I am on the verge of a real estate decision myself & in all probability I would rather opt to invest in the bonds rather than paying 20% tax & investing the rest in MFs & this is irrespective of which tax bracket i belong to. I am the contented happy-go-lucky types.

2 Likes
16

You can purchase it through bondskart or bondsindia. After KYC, they facilitate the purchase and the bonds will get credited directly to the demat account you provide.