What are 54EC Bonds or Capital Gain Bonds
54EC or Capital Gain Bonds are investments in bonds that help you save tax. Capital Gain Bonds have
been designed specifically to encourage people to invest in long-term infrastructure projects led by
government-owned PSUs and in return offer investors a tax saving mechanism. The name is derived from
Section 54EC of the Income Tax Act of 1961, under which investors can claim tax exemption on capital
gains.
What is Capital Gains Tax?
Capital Gain is an economic concept defined as the profit earned on the sale of a capital asset
(eg. Land/Building) that has been held over a period of time. The profit or gain arises when the
sale price of the asset is higher than the purchase price and is calculated as the difference between
the two. Investors must pay taxes in the year the capital asset is transferred which is called Capital
Gains Tax.
Capital gains tax is applied only to profits earned from the capital asset sale, but not on inheritance or gift, regardless of the ownership transfer.
54EC Bonds – Eligibility and Exemption
Investment in Capital Gain Bonds is for the sole purpose of reducing tax liability that arises from
sale of capital assets that are immovable like Land or Building. Hence an investor need not pay
capital gains tax if the gains are invested in these bonds under the following conditions:
1) Exemption is claimed only for profits from property sales comprising land and buildings, both residential
and commercial
2) Investment in Capital Gain Bonds should be within six months from the capital asset sale to avail the
exemption; one can check the allotment status after investing
3) The maximum exemption and investment limit is INR 50 lacs in a financial year
4) Investment in 54EC bonds have a lock-in of 5 years from the date of investment. Investors can’t sell or
redeem the bonds for five years to avail the tax exemption
Issuers of 54EC or Capital Gain Bonds
Only certain Public Sector Undertakings (PSUs) are approved by the government to issue 54EC Bonds.
The benefit to investors is that these issuers are government owned hence all the bonds are rated
AAA (highest safety) by credit rating agencies and carry minimal risk. The following are eligible
to issue Capital Gain Bonds:
REC – Rural Electrification Corporation Limited (REC 54EC Bonds)
PFC – Power Finance Corporation Limited
IRFC – Indian Railways Finance Corporation Limited
Click here to see the entire list of 54EC bonds for investment on IndiaBonds.
Key features of 54EC Bonds
In India, these bonds are a popular investment choice for mitigating long-term capital gains tax
arising out of the sale of the property. Here are the main features of the bonds:
Security– 54EC Bonds are a safe and secure investment as they are issued by government-owned PSUs
and carry the highest safety rating of AAA
Tenure and Issuance– These bonds have maturity or tenure of 5 years from the date of issue.
The issuance date is from the date of receipt of your application itself. Bonds have a lock-in period of 5 years
and are automatically redeemed at par at maturity
54EC bonds interest rates and TDS – These bonds have an interest rate of 5% per annum currently which is payable
annually.
There is no TDS deduction applied on the interest rate. However, investors have to pay tax on the interest as per their own applicable slab rate under interest income for that year.
Investment Amount– Minimum investment in Capital Gain Bonds is 1 bond for INR 10,000 with a maximum
limit in a financial year of up to 500 bonds for INR 50 lacs.
Holding– These bonds can be held easily in your Demat account or in physical form. We always
recommend investors hold securities in Demat accounts given higher safety and convenience!
How to buy 54EC Bonds Online?
This is where IndiaBonds makes it extremely simple for you. We believe that investors in India and an NRI should
have access to transparent pricing, information at hand, and the guidance of experts if required. You can invest
online by yourself in 54EC Bonds
If you are unsure of where to begin, contact us, and one of our bond managers will get back to you shortly and guide
you through the process.
In this digital age, it is time to explore investment options and buy bonds online from the comfort of your home in India!