Recently while trolling some Facebook forums on wealth creation, I came across the same question raised by one of the members of a forum to which I answered showing the math as below. How to invest long term capital gain Bond to save capital gain tax on sale of asset like land, property etc.
Answer: I have made a rough computation for your perusal. Suppose you have indexed LTCG of Rupees 20 lakhs. You can calculate the indexed cost and long-term capital gains with this LTCG calculator. Interest will start accruing from the day the subscription money is credited to REC account. Deemed date of allotment is the last day of each month in which the subscription money is received and credited to REC account. For computation purposes here, let’s consider the deemed date of allotment. At the onset, you save capital gains tax of Rs.
Now you will be paid Rs. The interest earned will be Rs. You will get your second installment of Rs. You will get your third installment of Rs. 2 years, because you get maximum interest rate for deposits more than 1 year and less than 2 years.
2,74,051 at the end of 2 years out of which you would have paid around Rs. So the net interest receipt is Rs. 90,226 as interest for that year. THE NET AMOUNT IN YOUR HAND AT THE END OF THE THIRD YEAR WOULD BE NOWHERE NEAR YOUR INITIAL AMOUNT OF RS. You invest this in 10 year 7. Let’s compute your return for 3 years alone, as the lock-in period in our case of REC capital gains bonds is 3 years.
At the end of the first year, you will earn a tax-free interest of Rs. You would earn an interest of Rs. So after paying the tax, the interest earned would be Rs. At the end of the second year, you will again earn a tax-free interest of Rs.