The capital bonds have a lock-in period of three years and the investor buying the bond cannot transfer or convert them into money by taking any loan or advance against the bond by offering them as security. On breach of these conditions, the tax benefit would be withdrawn. Also, if the amount invested in the bonds is less than the actual amount of capital gains made, only proportionate capital gains would be eligible for tax exemption.
The capital gains bonds are available from Rural Electrification Corporation (REC) and National Highways Authority of India (NHAI). The bonds of both REC and NHAI offer coupon rate of 6% with the interest amount being taxable and payable annually to the investor. The tenure of the bonds is 3 years and the minimum amount stipulated for investment is Rs 10,000, while the maximum amount that can be invested in these bonds is Rs 50 lakh.
The capital gains bonds are among the best investment instruments for saving the tax payable on capital gains made by the investor.