CAPITAL GAIN BOND

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Capital Gain Bond

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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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.

2.Section 54EC- Deduction on LTCG Through Capital Gain Bonds

Capital gain bonds or 54EC bonds are the fixed income instruments that provide capital gains tax exemption under section 54EC to the investors. The tax liability on long-term capital gains from sale of immovable property can be reduced by purchasing 54EC bonds.Issue Price of Bond Rs. 10,000 per bond . Amount of Bonds [Amount Payable (Rs.) = No. of Bonds x Rs. 10,000 per bond , No of Bonds ( Minimum 2 nos & Maximum 500 nos )

The owner of the bonds are the debtholders or creditors of the issuer. These bonds are issued by infrastructure companies that are backed by the government. Hence, the risk factor gets mitigated by buying such bonds. The capital gain bonds are redeemable before maturity. One cannot sell these bonds as they are not listed in the stock exchange. The interest is now to 5% p.a. and interest fully taxable in your hands.

Bonds eligible for exemption under section 54EC of the Income Tax Act

Rural Electrification Corporation Limited or REC bonds,

National Highway Authority of India or NHAI bonds,

Power Finance Corporation Limited or PFC bonds,

Indian Railway Finance Corporation Limited or IRFC bonds.

Key facts to avail the LTCG exemption by investment in capital gain bonds to avail the tax-exemption the investment must be made within 6 months of the date of sale of immovable property. Such investment can be redeemed only after 5 years. The exemption on investment is allowed only against long term capital gains on sale of immovable property (i.e. sale of land or building).The exemption is available up to a maximum amount of Rs 50 lakh

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