Should I buy capital gains bonds or pay tax and invest in PMVVY?

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I am 70-year-old and have got long term capital gain money of 15 lacs by selling 30-year-old residential property. I have the option of buying the Section 54 EC bonds with lock-in period of 5 years and a simple interest of about 5 percent. In this case, I do not have to pay any tax now. Alternatively, I can invest 15 Lacs in Pradhan Mantri Vaya Vandana Yojana with a higher interest rate but I will have to pay upfront 20 percent tax now on a long term gain of 15 Lacs. Considering a time horizon of 5 years or less, where should I invest? My wife and two daughters are in late thirties.

R P Saxena

At the stage in which you are at present, liquidity of investment matters a lot. Your investment in Capital Gain Bond and Pradhan Mantri Vyaya Vandana Yojana (PMVVY) will be locked for 5 and 10 years respectively, hence the liquidity problem will be with both these investments.

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If the lock-in of 10 years of PMVVY is bothering you then, you can consider Senior Citizen Savings Scheme (SCSS) if you have not invested earlier where there is a lock-in of 5 years and the rate of return is the same as PMVVY. However, let us look at the following scenarios that can help you in making the right decision for you.

₹6 Lacs up to maturity” title=”In this case, you will always have liquidity of ₹6 Lacs up to maturity”>

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In this case, you will always have liquidity of 6 Lacs up to maturity

From the above table, if you need to maintain some liquidity then you can also look at a combination of Capital Gain Bond and Fixed Deposit where you can invest 7.5 Lacs in Capital Gain Bond, pay a tax of 1.5 Lacs on the remaining amount and invest 6 Lacs in Fixed Deposit. With this, you will always have liquidity of 6 Lacs up to maturity. But you should only opt for this if you need some money handy with you throughout the coming five years.

Answered by Harshad Chetanwala, founder, Mywealthgrowth.com

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