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NHAI Sec 54EC Bonds for the year 2021-2022
by 5paisa Research Team 16/11/2021

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 the National Highways Authority of India Act, 1988. These bonds are also known as Sec 54EC bonds and are the best way to save long-term capital gains tax on the sale of any long-term capital asset. It looks after the projects of national highway development along with the other projects. NHAI delivers stable returns and is one of the safest instruments. However, these bonds do not deliver higher-returns, though they are popular for saving tax and capital preservation. Presently, some bank fixed deposit schemes also offer 5% or lower than 4% interest rate and they don’t get any tax benefits. Section 54EC is the deduction allowed by Income Tax Act on Long term Capital Gains.

Though, 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% 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.

For more details about the bonds “Click Here”   

Tax benefits u/s 54EC  

Particulars    

Section 54EC    

Assets transferred    

Any long-term capital asset    

Assessee    

Any assessee    

Holding period of original assets    

Long-term    

Asset to be acquired    

Bonds of NHAI or REC or any notified bond    

Time limit for acquisition    

Within 6 months from the date of transfer    

Quantum    

The amount of gains, or the cost of the new asset, whichever is lower.    

Other conditions    

Maximum investment during any financial year cannot exceed Rs 50 lakh. Against capital gain of one-year, the maximum deduction possible is Rs 50 lakh.    

 

For instance,

Mr Jain purchased a plot for Rs 5,40,000 on April 30, 2008. He sold the same for Rs 65 lakh on April 28, 2021. He invested Rs 25 lakh in bonds of NHAI on September 30, 2021. What will be capital gains in this case? Let’s have a look:  

Particulars     

Amount (Rs)    

Sale consideration    

65,00,000    

Less: Indexed cost of acquisition (cost of acquisition *index for the year of sale/index for the year of purchase)    

12,49,489 (5,40,000*317/137)    

Long-term capital gain    

52,50,511    

Less: Investment in NHAI bonds u/s 54EC    

25,00,000    

Taxable long-term capital gain    

27,50,511  

Therefore, tax on long-term capital gains will be at the rate of 20% in the above case where Mr Jain invested in NHAI bonds while tax liability will be Rs 5,50,102. Conversely, if Mr Jain wouldn’t have invested in NHAI bonds, his tax liability would have been Rs 10,50,102. With this, we can see that Mr Yadav saved Rs 5 lakh of tax on Long-Term Capital Gains by investing in NHAI bonds.

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