Invest in the bonds or in property

Written by AN Shanbhag | Sandeep Shanbhag | Updated: Sep 30 2007, 08:20am hrs
I have purchased shares about 6 years ago when there was no STT applicable either on purchase or sales of shares. Now I intend to sell these shares through NSE by paying the STT on sale of these shares. Will I be liable to pay for any capital gains tax or will the total receipts be completely tax-free Or alternatively, will the cost price of shares purchased 6 years ago be indexed and the capital gains tax payable after considering the indexed cost If so, at what rate is capital gains tax payable Please clarify.


Sec. 10(38) exempts - any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where -

(a) The transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and

(b) Such transaction is chargeable to securities transaction tax under that Chapter.

Consequently, the payment of STT at the purchase of the shares (or MF units) is immaterial and inconsequential for the purpose of the exemption.

I have recently sold a residential property in Mumbai after holding it for over 3 years. I intend to purchase a new housing property for much more than the sale value, within 2 years of this sale.

However I have a query. I have sold this property in May 2007 (FY 07-08). So going by your opinion, if I do not purchase a property by July 31, 2008 then I will be required to park the funds in the Capital Gains deposit A/c of a public sector bank. My query is:

Till July 31, 2008 (the date of filing FY 07-08 returns), can I use the funds as I like (say FD, FMP, MF etc) or do I have to put it REC bonds, etc within 6 months of May 2007 (date of sale of property)

Narendra Sohani

The bond investment and the property investment to save capital gains tax are mutually exclusive of each other. That is to say that to save the tax, either you would invest in the bonds or in property. Of course if the capital gain amount is high, you may invest partly in bonds and the rest in property.

You have to invest the capital gains in REC bonds within 6 months from the date of transfer. The REC bond investment is locked in for 3 years.But in your case, yes, you can pretty much do what you like with the amount till July 31, 2008.

In an off-market deal, M/s Syngenta SA Asia purchased 220 shares of Syngenta India from me resulting in a long-term capital gain of Rs 1,60,060 for me.

For a zero Capital Gains tax liability, where should I invest the sum - in NABARD Bonds (10 yr. lock-in), or Public Sector Bank capital gains scheme

Mohan Rao

The capital gains amount may be invested in NHAI and REC capital gains bonds, if available. The lock in is three years.

The NABARD bonds that you refer to are deep discount bonds, which are just meant for investments and do not offer shelter from the capital gains tax liability. Alternatively, you may invest in a residential house and till you do so, you can temporarily park the funds in the capital gains scheme of the bank that you mention.

In my previous company I had a PF option. But my current company does not offer PF. What should I do I don't want to take the money from my PF but I feel I might have to run about my company for their signatures when I decide to withdraw (maybe in couple of years). To this problem one of my colleagues suggested to go in for PPF as we don't have PF in my current company. Is it a good idea We don't have any break ups. My take home is around Rs. 18,000 after TDS. Which would be a better option for me to not only reduce tax but also in terms of investment options.

Noor Ahmed

If your current company does not offer you PF, you have no option but to withdraw it. You cannot let the old PF continue. It is not clear from your query if you have worked for a continuous period of 5 years. If so, the withdrawal of PF will not be taxable, else it will be.

Also, note that the maximum limit for investment in PPF per year is Rs 70,000. So you may not be able to reinvest your entire PF proceeds into PPF. Therefore, as of now, your best option is to invest Rs. 70,000 in PPF regularly and reinvest the PF proceeds either in bank deposits, or if you can afford a little risk, then in balanced funds of mutual funds.

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