Cap Gain Bonds or Bank FD - Which is a better option?

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  1. Anand Mantha

    Anand Mantha Member

    I am 63 yrs old & sold a vacant plot of land for 50Lakhs, last month. I dont want to invest in another property, to claim Cap.GainExemption. I am still working and come under 10%tax bracket. What is the BEST investment avenue for me.

    1.Put 50Lakhs in Cap.Gain Bonds

    2. Pay 20% tax, and invest the rest of money in a mixture of Debt and Balanced equity funds or company FDs.

    3. Any other better investment????
  2. Karan Batra

    Karan Batra Well-Known Member

    The current rate of interest offered on Cap Gains Bonds is 6% and on Bank FD is around 7.25%. Considering that you are a senior citizen - you will get extra interest of 0.5% and therefore total interest offered by Bank FD would be 7.75% (approx)

    Bank FD is giving you additional 1.75% interest as compared to Capital Gain Bonds. But if you invest in FD's - you cannot claim Capital Gains Exemption and therefore will have to pay Rs. 10 Lakhs to the Govt as Capital Gains Tax (20% of Rs. 50 Lakhs)

    Therefore, I dont think it is a good option. Cap Gain Bonds come with a lock in period of 3 years only. Just to earn extra 1.75% interest for the next 3 years is not a good case to pay Rs. 10 Lakhs to the Govt and therefore I would not advise you to invest in FD.

    I think Cap Gains Bonds is much better option in the above mentioned case.
    V K Khanna likes this.
  3. Prof Bajaj

    Prof Bajaj New Member

    Please let me know the purchase amount so that capital gain amount can be known. I dont think entire Rs. 50 Lakhs will be capital gains.

    Let us say that the purchase price was Rs. 5 Lakhs so the capital gains would be around Rs. 45 lakhs.

    In that case, your tax liability would be Rs. 4.5 Lakhs (10% of 45 Lakhs). You have below options :

    1. You can pay Rs. 4.5 Lakhs tax and Remaining 45.5 Lakhs can be invested in a hybrid fund. After 3 years, this can grow to Rs. 60 Lakhs (approx).

    2. You can invest Rs. 45 Lakhs in Cap Gain bonds @ 6%. Remaining Rs. 5 Lakhs can be invested in a hybrid fund. This amount can also grow to Rs. 60 Lakhs (approx).

    Thus, it will mainly depend on what is your purchase price.
  4. Anand Mantha

    Anand Mantha Member

    Thank you Mr. Karan for your advise. I also thought of on the same lines.

    Thank you Prof. Bajaj for your advise. My purchase price was just 1070 rupees,almost 35yrs back. I dont benifit much after indexation. Also, since I sold a vacant land,the CG tax I need to pay(if I am not claiming exemption) is 20% , which comes to 10 lakhs. Your answer in (2)----- If Ihave to invest in a Hybrid or any other MF, I have to pay CG tax on 5 Lakhs, which comes to 1 Lakh. Only 4 lakhs can be invested.
  5. V K Khanna

    V K Khanna Active Member

    Dear Karan, I fully agree with your analysis. In the current scenario, investing the capital gain amount in 54EC bonds is a far better option than investing in any other product.

    @Anand Mantha had posted a similar query on 31st August 2016 and I had advised him to go for 54EC Capital Bonds as currently there is no investment option available which would fetch him more than 20% return.

    The following link refers:-
  6. Anand Mantha

    Anand Mantha Member

    Thank you Mr Khanna, for once again justifying, investment in CG bonds.
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