Tipping point

What are the tax benefits of investing in REC bonds?
The issue of REC or Rural Electrification Corporation bonds, which opened on Friday, will give tax benefits under section 54EC of the Income Tax Act. REC plans to raise Rs 4,500 crore through the issue. The interest rates on offer are 7.72 (for 10-year bonds) and 7.88 per cent (for 15-year bonds) – marginally higher than average wholesale price index measure of inflation at 7.36 per cent (March-November). Investors can use these bonds as a safeguard from long-term capital gains tax. Any capital gain as a result of a transfer of a long-term capital asset, say property sale, is not charged tax if the gains are invested in REC and National Highways Authority of India bonds. For example, if you have sold property and are sitting on capital gains, reinvesting the amount in these bonds will save you tax.

How is it different this year?
This year, REC has allowed retail investors to put money up to Rs 10 lakh – five times more than you can do in equities. As much as 40 per cent of the issue has been earmarked for retail investors.