Investment in financial assets

1. If an assessee having LTCG invests in any of the following the amount invested is eligible for deduction up to a maximum of the LTCG.
   1. bonds redeemable after three years issued on or after 1.4.2000 by National Bank for Agricultural and Rural Development (NABARD) or by National Highway Authority of India (NHAI).
   2. bonds redeemable after three years issued on or after 1.4.2001 by Rural Electrification Corporation Limited (RECL).
   3. bonds redeemable after 3 years issued on or after 1.4.2002 by National Housing Bank or Small Industries Development Bank of India.

   The investment is to be made within six months from the date of transfer of the original capital asset. The bonds should not be transferred or converted into money for a period of three years from the date of acquisition. In case the bonds are transferred within 3 years from the date of their acquisition, the deduction allowed for investment earlier would be taxed in the year of such transfer as capital gains. For this purpose it would be considered as transfer even if the assessee takes any loan or advance on the security of the specified securities. For the investment in the bonds rebate u/s 88, deduction u/s 80C will not be available.

   For the assessment year 2007-08, the benefit of the above tax exemption shall be restricted to investment of those bonds, which are redeemable after 3 years and are issued by the National Highways Authority of India and the Rural Electrification Corporation Ltd. only.

   The Finance Act, 2008 has laid a ceiling of Rs. 50 lakhs on the maximum investment that can be made under this section w.e.f. 1.4.2008.

2. Investment in equity sharesIf an assessee has LTCG from transfer of listed securities (securities as defined in Securities Contracts (Regulation) Act and listed in any recognized Stock Exchange in India) or units of a mutual fund specified under Sec. 10(23D) or Unit Trust of India and invests in acquiring equity shares satisfying the following conditions, the amount invested is eligible for deduction up to a maximum of the LTCG.
   1. the issue is made by a public company formed and registered in India.
   2. the shares forming part of the issue are offered for subscription to the public.

   The investment has to be made within six months from the date of the transfer of the listed security or unit.

   The equity shares should not be sold or otherwise transferred within a period of one year from the date of their acquisition. In case they are transferred within one year the deduction allowed in investment would be taxed in the year of such transfer as LTCG.

   For the investment in the equity shares rebate u/s 88, deduction u/s 80C will not be available.

   It may be noted that no such deduction shall be available from assessment year 2007-08 onwards.

Investment in financial assets

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