With real estate valuations falling, the rush at the few remaining counters selling capital gains tax-exempt bonds is tapering off.
The National Highways Authority of India (NHAI) and Rural Electrification Corporation Limited (REC), the two remaining issuers of such bonds, have mopped Rs 820 crore so far in the current financial year. NHAI has raised Rs 150 crore against the Rs 4,000-crore target for this fiscal, while REC, which opened the issue in April, has raised Rs 670 crore against a target of Rs 2,500 crore.
In 2008-09, NHAI had raised Rs 1,630 crore against a target of Rs 3,000 crore, while in 2007-08 and 2006-07, it had collected Rs 305 crore and Rs 1,500 crore, respectively.
“As the real estate (market) is witnessing a slowdown, the response to our bonds is poorer than previous year,” said a senior NHAI official. An REC executive also said the response was not overwhelming.
“The response has been poor compared with the previous year, as the real estate market is witnessing a downturn,” said Anil Chopra, CEO and director, Bajaj Capital, an investment advisory firm.
Under the income tax law, one can save on payment of capital gains tax if the amount is used for repurchase of property within a 12-month period. Alternatively, capital gains tax can be avoided by investing in bonds issued by NHAI and REC. The bonds are popularly known as 54 EC bonds (after Section 54EC of the Income Tax Act, 1961). Earlier, entities such as the National Housing Bank were also allowed to issue these bonds. But a few years ago, the government reduced the number of isuuers. In addition, it capped the maximum amount that could be invested in these bonds in order to limit the benefit to individuals. Further, the amount of bond issuance was lowered to allow the government to raise revenue during the real estate boom.
With real estate valuations falling, the volume of transactions has come down. Analysts estimate the decline to be in the range of 20-30 per cent.