Capital Gain Bonds

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Capital Gains Bonds

54EC bonds, commonly referred to as Capital Gains Bonds, are one of the ways to save long-term capital gain tax. 54EC bonds are specifically meant for any person (individuals, HUFs, partnership firms, companies etc.). You can avail exemption in respect of long-term capital gains arising from the sale of residential property, if the capital gain is invested in the Capital Gain Bonds.

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The exemption will be the amount of capital gain or the amount of investment made, whichever is less. The exemption is subject to :

  • The investment is made within a period of 6 months from the date of transfer of the asset
  • Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual.
  • If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.

The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd), NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited).

Key Features Of 54Ec Bonds

  • Safe and Secure : 54EC bonds are AAA rated and are issued by PSUs backed by Government of India.

  • Interest Rate : 54EC bonds offer 5% rate of interest payable annually.

  • Tax implication : Interest on 54EC bonds is taxable. The principle is tax-free on maturity.

  • Tenure : 54EC bonds have a lock-in period of 5 years and are non-transferable.

  • Investment amount : The minimum investment in 54EC bonds is 1 bond amounting to Rs. 10,000 and the maximum investment in 54EC bonds is 500 bonds amounting to Rs 50 lakhs in a financial year.

  • Mode of Holding : 54EC bonds can be held either in Physical form or in Demat Form.