54 EC Capital gains bond

Any long-term capital gains on a property held for three years or more attracts tax @ 20%. However, you can avoid paying that tax if the capital gains are invested in bonds specified under Section 54 EC of the Income-tax Act. Any approved institution as well as the general public, including individuals, HUF, non-resident Indians can invest in these bonds.

You can invest a minimum of Rs.10,000 and a maximum of Rs.50 lacs. These bonds can be redeemed after three years and are non-transferrable as well as non-negotiable. Moreover, these cannot be kept as a security against any loan. While there is no deduction of tax at source, the interest earned from these bonds is taxable.

As for the interest rate offered by these bonds, National Highway Authority of India (NHAI) series XII bonds ( Open from April 1, 2011 to March 2012 with an option to close the issue anytime) are offering 6% payable annually.

Apart from NHAI, these bonds are also issued by Rural Electrification Corporation Ltd. (REC) from time to time.

Infrastructure bonds issued under Section 80 CCF

These bonds were introduced for the first time in the Union budget 2010. Under this section, one can invest upto Rs.20,000 in the long-term infrastructure bonds and get tax relief. Though these bonds were announced for the year 2010-11, the finance minister extended the period by for one more year in the Union budget 2011.

Infrastructure bonds have a lock-in period of 5 years and generally have maturity period of 10 years. Once the lock-in period expires, one can trade these bonds on NSE/BSE. There is also a buy back option. The returns from these bonds are generally in the range of 7.55 to 8%.

During the year 2010-11, these bonds were issued by LIC, PFC, L&T, IDFC and IFCI.