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Capital Gains of Rs. 85 Lakhs: Invest in Bonds and Residential Property?

Ramalingam

Ramalingam Kalirajan  |7952 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 13, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Badarinaath Question by Badarinaath on Feb 13, 2025Hindi
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Hi When the capital gains is rs85 lakhs, can I invest 50 lakhs in bonds and remaining 35 lalks in residential property? Regards

Ans: You have capital gains of Rs 85 lakh. You want to invest Rs 50 lakh in bonds and Rs 35 lakh in a residential property. Your approach is partially correct, but let’s analyse it in detail.

Exemption on Capital Gains Bonds (Section 54EC)
You can invest up to Rs 50 lakh in specified capital gains bonds.

These bonds have a lock-in period of 5 years.

Interest earned from these bonds is taxable.

You must invest in these bonds within 6 months of sale to claim exemption.

Exemption on Residential Property Purchase (Section 54F)
You can reinvest capital gains in a new residential property.

The property must be purchased within 2 years or constructed within 3 years.

If you buy a new property, you must not own more than one house before this purchase.

Can You Use Both Options Together?
Yes, you can combine both options to save tax.

Investing Rs 50 lakh in bonds will give partial exemption.

Investing Rs 35 lakh in property will also give partial exemption.

Any amount not reinvested will be taxed as per capital gains rules.

Alternative Tax-Efficient Options
If saving tax is your main goal, you can invest fully in bonds.

If wealth creation is the goal, consider investing in mutual funds after tax payment.

Actively managed mutual funds can give better long-term returns.

Important Considerations
Liquidity: Capital gains bonds have a 5-year lock-in.

Returns: These bonds offer lower returns than equity mutual funds.

Long-Term Strategy: Investing in mutual funds can help you grow wealth over time.

Finally
Your plan is correct, but you must consider tax rules carefully.

If you need liquidity, avoid investing too much in bonds.

A Certified Financial Planner can help you optimise your investment plan.

Always align investments with your long-term financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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