This is one tax break the government would love to dump but will end up truncating instead: exempting capital gains on real estate if they are invested in specified bonds. The government is examining the option of limiting the benefit to individuals and denying it to companies, partnerships and other organisations.

The government has indicated its intent to phase out several tax exemptions. However, individuals, who are entitled to tax breaks on capital gains realised from property deals, may be spared the axe this time, officials said.

The bonds that offer individuals such a tax shelter are popularly known as 54 EC bonds. However, as happened this fiscal, the government plans to cap the amount that can be raised by issuers of these bonds and also the amount that can be invested in these bonds by individuals. Restricting the benefit to individuals is another option.

Currently, if an investor sells a capital assetfor instance, an immovable propertyafter 36 months from the date of acquisition, the gains from such a sale are treated as long-term capital gains and taxed at 20%.

Individuals, firms, companies and trusts can claim a capital gains tax exemption if they invest these gains in 54 EC bonds. Investor appetite for these bonds has been high, thanks to the current boom in the real estate market.

This fiscal, two issuersstate-owned Rural Electrification Corporation and National Highways Authority of Indiahave been allowed to raise Rs 9,500 crore from these bonds. RECs authorisation has been capped at Rs 8,000 crore and NHAIs at Rs 1,500 crore.

REC raised Rs 4,500 crore in the first tranche while it has been authorised to raise another Rs 3,500 crore in the second. In the first tranche, investors were allowed the flexibility to invest any amount in these bonds. However, when REC was authorised to raise money in the second tranche, the government set a limit of Rs 50 lakh for each applicant.

This means a person who has already invested Rs 50 lakh will not be allotted any more bonds. The cap is meant to ensure that the bonds are not cornered by the super-rich.