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Capital Gain bonds


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Are you looking to sell your property but are worried about paying tax for gains? Don’t sweat. We tell you how to save on taxes on any long-term capital gain.
A long-term capital gain is any revenue that you get from the sale of an asset. The asset could be land, property or even investments. According to the Income Tax Act, you are liable to pay tax for such gains. However, you can reduce the liability of these taxes.
Invest in section 54EC bonds, also commonly known as capital gain bonds, to avail tax deductions in the future. The bonds are issued as per the provisions of the section 54EC of the IT Act.
So what are the bonds that fall in the category? They are bonds offered by Rural Electrification Corporation Ltd (REC), Power Finance Corporation Limited (PFCL) and National Highways Authority of India (NHAI), among others.

Features of tax free bonds

Capital gain bonds are safe, secure and offer a decent rate of interest. Here are some of the primary features of the 54EC bonds.

  1. Interest: The section 54EC bonds offer an interest rate of 5.75 percent. Interest is earned annually. Interest earned on the bonds is taxable.
  2. Safe: The capital gain bonds are AAA rated and are secure. They are backed by public sector enterprises, and so the default rate is low.
  3. Tenure: You can invest in these bonds for five years, which is also the lock-in period.
  4. Transferability: The 54EC bonds cannot be transferred from one person to another at any point in time.
  5. Investment limit: You have to invest in a minimum of one bond that is worth Rs. 10,000. The upper limit is 500 bonds, worth Rs. 50 lakh in a year.

Benefits of tax free government bonds

The section 54EC bonds come with a host of advantages. Here are four reasons why you should invest in capital gain bonds:

  1. Exemption on capital gain: The primary benefit of this product is that it helps you save on taxes on your capital gains. The exemption is for the amount of capital gain or the amount of investment made, whichever is less.
  2. Assured income: You stand to gain an annual interest of 5.75 percent on your investments. So you can rest assured of your income from your investment in 54EC bonds.
  3. Ease of access: You can hold 54EC bonds in demat format or physical format.
  4. Safe investment: Capital gain bonds are backed by the government of India. You can invest in these bonds and not have to worry about returns.

Conclusion (CTA):

Capital gain bonds come with zero risks of repayment and interest. Your annual income from interest earned on these bonds is guaranteed by the government of India. If you are selling your property and are looking for ways to avoid having to pay taxes, look no further than the 54EC bonds.

Frequently Asked Questions


How do I invest in 54ec bonds?

54EC bonds offer tax exemption under IT section 54EC. You can purchase these bonds after receiving a capital gain from selling a property. These bonds have five years lock-in period and interest payable annually at the rate of 5.75 percent.

Are 54ec bonds tax-free?

You can receive tax exemption under IT section 54EC by investing in these bonds. However, the interest earned is taxable as per the income tax slab. You will need to declare capital gain from 54EC bonds under your return filing since no tax is deducted at the source.

When should I invest in 54EC bonds?

54EC are capital gain bonds, that is used to receive the capital gain tax exemption. If you have received capital gain from selling a property, you can invest in these bonds to avoid paying capital gain tax.

You can put in a minimum sum of Rs 10,000. These bonds are highly secure, sovereign in nature with a AAA rating.

Who can invest in 54ec bonds?

These are bond for capital gain tax exemption, and so individuals and HUFs can apply. If you want to invest in 54EC bonds, you need to do it within six months of selling the property.

How do you buy bonds under section 54ec?

You can apply through your broker if you are interested in investing in 54EC bonds. If you want to purchase, you must do it within 6 months of transferring the asset. The minimum amount to invest is Rs 10,000 and maximum Rs 50 lakhs.

Are capital gains bonds taxable on maturity?

The 54ec capital gain bonds are tax exemption bonds, allow you to avoid paying tax on capital gains arising from selling property. These bonds continue to be tax exempted, and no tax is deducted at the source. However, the interest gained is taxable and must be mentioned during the tax return filing.

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