Playing Hard to save Capital Gains Tax??

Last updated: 24 September 2007

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Strike when the iron is hot. Banking on the bullish market sentiments, National Highways Authority of India (NHAI) plans to issue capital gains bonds worth Rs 2,000 crore on Monday. The bonds, with a face value of Rs 10,000, carry an annual coupon rate of 5.50% and a lock-in period of three years. An individual investor can invest up to Rs 50 lakh in the tax-free bonds, as per the issue conditions. The issue would close on March 31, 2008, or once the target is met. Some of the country’s leading banks, such as HDFC Bank, IDBI Bank, Syndicate Bank, Union Bank of India and Canara Bank, are marketing the issue. The Finance Bill, 2007, had authorised NHAI and Rural Electrification Corporation (REC) to issue 54EC capital gains bonds during 2007-08 as per provisions of Income-Tax Act, 1961. Section 54EC of the Income-tax Act, 1961, provides that the capital gains arising from the transfer of a long-term capital asset shall not be charged to tax to the extent such gains are invested in a long-term specified asset within a period of six months after the date of the transfer. Bond issues of NHAI and REC qualify for the exemption. “The bond issue is part of the revenue-generating exercise to fund highway projects. While we would raise Rs 2,000 crore from the market through bonds, the government has sanctioned Rs 6,541.06 crore as fuel cess to NHAI for 2007-08,” an NHAI official said. NHAI funds highway projects through issue of bonds, fuel cess and loans from multilateral funding agencies such as Asian Development Bank (ADB) and World Bank. The authority raised Rs 1,500 crore through a bond issue last fiscal. The authority is implementing the country’s most ambitious highways project under National Highways Development Project (NHDP). The project is divided into seven phases. The present phases — I, II and IIIA — envisage improving more than 25,785 km of arterial routes of the national highway network of the country to international standards. While NHDP phases I and II comprising the golden quadrilateral are likely to be completed by December 2008, NHDP phase IIIA is scheduled for completion by December 2009.

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