You can claim tax exemption on long-term capital gains (LTCG) arising from transfer of capital assets like real estate and gold if you reinvest the gains in capital gains bonds specified under Section 54EC of the Income-tax Act, 1961.
You need to reinvest the gains in these bonds within six months of the asset’s transfer. Also, the exemption is proportionate to the LTCG invested. If the investment is less than the LTCG realized, only proportionate gains would be tax-exempt.
The maximum you can invest in these bonds is ₹50 lakh per financial year. But in the case of jointly held assets like real estate, each owner has a separate limit of ₹50 lakh. Currently, capital gains bonds from National Highways Authority of India and the Rural Electrification Corp. Ltd are available for investment. Both have a lock-in period of five years and offer an interest rate of 5.75% per year, to be paid annually. Interest earned from these bonds is taxable in the hands of the investor.
Remember that you can’t transfer or convert these bonds into money or take any loan or advance against them for five years from the date of acquisition, else the tax exemption benefit would be withdrawn.