278. Investing in government

bonds to save capital gains in

India

Q: Dear Sir, I am a PIO who resides in the U.S. I recently sold my property in India and my Chartered Accountant has recommended that I invest the money in government bonds to avoid paying the 22% tax rate in India. I was told that after 3 years I will have no problem repatriating the money to my U.S. bank account (tax free). He also advised me that my other option was paying 22% tax now and have the money repatriated to my U.S. account. Please advice me with the best option. Is it a good idea to invest in bonds just to avoid paying the taxes or should I just have the funds be transferred to my U.S. account? A. Provided you held the property for over three years you may be able to save capital gains tax by investing in bonds if the amount of capital gain is invested within six months in infrastructure- related bonds of NHAI or REC under Sec. 54EC. Bonds, such as those issued by the National Highways Authority of India, the Rural Electrification Corporation, Small Industries Development Bank of India, National Housing Bank or National Bank of Agricultural and Rural Development are normally such investments. Consider your options before making your decision. 1. Make sure your capital gains have been calculated taking advantage of indexing factor as this can reduce the capital gains amount. For more information on indexing calculation check question number 211. 2. Check to make sure that the investment selected is allowed for NRI’s. Sometimes there are restrictions when it comes to Non-Residents. Making sure you choose the legal route will help when you decide to eventually withdraw your money and have it transferred to USA legally. 3. As the CA specifically all information about the bonds he is leaning towards investing on your behalf. This information should include the type, maturity procedure, interest rate, penalties etc. While your CA may be someone close to you there are cases when some people lead their clients to investments that pay them some form of a finders fee as a commission. Knowing all the facts, will ensure you get the best deal as well as no surprises later. 4. When you have the correct information you can decide whether you should consider the option of just paying the tax and investing the amount in other high yielding investments in India or USA.