Capital Gains Bonds or 54EC Bonds, are one of the most popular and best way to save long-term capital gain tax on sale of securities or properties in India. 54EC bonds are specifically meant for investors who earn long-term capital gains and would like to have tax exemption on these capital gains. Tax deduction is available under section 54EC of the Income Tax Act. You can invest in 54EC bonds to get benefits of tax deduction. The maximum limit for investing in 54EC bonds is Rs. 50,00,000 (Rupees Fifty Lakhs only). The eligible bonds under Section 54EC are issued by REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited).
Key Features of 54EC Bonds
54EC bonds are popular investment instruments as investing in 54EC bonds allows investors to claim tax deductions on long-term capital gains. 54EC bonds also offer following or features or benefits -
- Highest safety and security: 54EC bonds are AAA rated which denotes highest degree of safety.
- Interest: Interest on 54EC bonds is taxable. No TDS is deducted on interest from 54EC bonds and wealth tax is exempted.
- Tenure: Effective April 2018, 54EC bonds come with a lock-in period of 5 years. These bonds are non-transferable.
- Investment amount: Usually, 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.
- Interest Rate: Currently, 54EC bonds offer 5.75% rate of interest payable annually. However, you should always check the interest rates before subscribing to these bonds as these are subject to change from time to time.
- Individuals as well as members of HUF can make investments in 54EC bonds. You should invest in 54EC bonds within 6 months of transferring capital asset.
- Long-term capital gains from investments in 54EC bonds or sale of 54EC bonds can be reinvested in order to save tax.
- Investing in 54EC bonds allows you to save tax while earning interest income from the 54EC bonds.
- 54EC Bonds can be held in either demat or physical form
- With effect from FY 2018-19, benefit of investing in 54EC bonds would be available on sale of land or building (residential or commercial). The capital gains 54EC bonds eligible for tax deductions can be issued only by REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and NHAI (National Highways Authority of India). Avail the opportunity to invest in 54EC bonds to gain tax deductions.