Capital gains from property transactions will have to be invested for a minimum of five years to avail tax exemption. Finance Minister Arun Jaitley proposed to increase the investment tenure of capital gains arising out of sale of land or building into bonds issued by National Highways Authority of India or by Rural Electrification Corporation from the existing three years to five years.
The government also announced that such benefit would only be available for long-term capital gains arising out of sale of land and building or both. “It is proposed to rationalise the existing provision relating to investment in capital gain bonds by providing that the exemption shall be available only in respect of long-term capital gains arising out of sale of immoveable property, and investment in the bond shall be for a minimum period of five years from the existing three years,” said the Budget document.
While capital gains on sale of land or building needs to be invested into such bonds (NHAI or REC or other bond notified by the government) within six months of the date of sale by the investor, it was allowed to be invested in bonds of up to three years earlier. Making the changes, the government said the move would ensure that such funds are available with the eligible bond issuing company for more than three years.
“It is also proposed to provide that long-term specified asset, for making any investment under the section on or after the 1st day of April, 2018, shall mean any bond, redeemable after five years and issued on or after 1st day of April, 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf,” it said. Experts said this would increase the lock-in period for such capital gains (for tax benefit) from three years to five years, before they become available to investors.
In a note, ICAI termed the move as less attractive for the investor. “The benefit of investment in bonds of NHAI/RECL etc. would be available only in respect of long-term capital gains on transfer of land or building and not any other capital asset. Also, the lock-in period has been increased from three years to five years.
This proposal, coupled with the removal of long-term capital gains exemption on transfer of listed equity shares, would make the capital gains taxation regime less attractive to the investor,” said ICAI.