Capital Gain Bonds, also known as Capital Gains Tax Exemption Bonds, are special bonds issued by certain entities, typically government-backed institutions, to provide investors with a tax-saving investment option. These bonds are specifically designed to help investors mitigate the tax liability arising from capital gains earned on the sale of certain assets, such as real estate or stocks.
Here are some key features of Capital Gain Bonds:
- Tax-saving instrument: Capital Gain Bonds provide investors with a means to defer the capital gains tax liability arising from the sale of assets like property or stocks. By investing the capital gains amount in these bonds within the specified timeframe, investors can defer the tax payment until the maturity or redemption of the bonds.
- Issued by government-backed entities: Capital Gain Bonds are typically issued by government-backed institutions or financial bodies authorized by the government. These institutions issue the bonds to raise funds for various development projects and infrastructure initiatives.
- Long-term investment: Capital Gain Bonds usually have a long maturity period, typically ranging from 3 to 5 years or more. During this period, investors receive fixed interest payments at regular intervals, providing them with a source of income.
- Fixed interest rate: These bonds offer a fixed rate of interest, which is predetermined at the time of issuance. The interest earned on the bonds is taxable as per the prevailing tax laws.
- Non-transferable: Capital Gain Bonds are non-transferable, meaning they cannot be traded on the secondary market like regular bonds or stocks. Investors must hold the bonds until maturity to receive the principal amount and accrued interest.