There is an old proverb that goes 'A penny saved is a penny earned’. This means that it is as good to save money that you already have as it is to earn more. Likewise, it is wise to save your gains from taxation.
There are various legitimate ways of reducing your tax outgo. One such is to invest in capital gains tax exemption bonds to save tax on long-term capital gains (LTCG). Recently, REC (formerly Rural Electrification Corporation) launched the REC Capital Gains Tax Exemption Bonds-Series-XVI for people to invest and save tax on capital gains. Read more about it here.
However, tax on LTCG from property transfer can also be saved by reinvesting in residential property within the stipulated time. But the question is, whether it make sense to reinvest the capital gains in 54EC bonds, or buy a residential property to save tax, or pay taxes and invest the remaining in other better options. Let’s explore: