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