Investors can purchase 54EC bonds to reduce the long-term capital gains tax on income from sale of immovable property. This bond is not available for investment of short-term capital gains proceeds. Under Section 54EC of the Income Tax Act, a capital gains bond serves as a financial instrument that offers individuals a tax-saving advantage on their long-term capital gains. When an individual sells assets like land, buildings, or other capital properties, they are liable to pay taxes on the gains realized from the sale. However, Section 54 of the Income Tax Act presents an opportunity for individuals to invest their capital gains in specified bonds and enjoy tax exemptions.

One of the most legitimate ways to save capital gains taxes is by investing in capital gains tax exemption bonds to save on the long-term capital gains arising from the sale of the property. This is covered in its entirety under Section 54EC of the Income Tax Act, India 1961. Here we understand the nuances of section 54EC and how it could benefit an individual with long-term capital gains arising from the sale of the property.

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. If any person does not invest the amount within the stated time frame, they can deposit the investment amount in a PSU or Public Sector Bank. If this happens, the deposit made will be seen as an investment in capital gain bonds in India, wherein tax exemption can be availed as per the regulations stated under the Capital Gains Account Scheme, 1988. The individuals who purchase the bonds are deemed to be debt-holders or creditors of the financial institution which has issued the bonds.

Understanding Section 54EC: Tax Benefits and Investment Options

The lock-in tenure as well the interest rate on these bonds is determined beforehand. Therefore if you are looking for tax exemption on LTCGs, you need to monitor this market closely. Financial instruments can be divided into two types – market-linked how to write a winning grant proposal financial instruments and fixed-income financial instruments. Market-linked financial instruments consist of equity shares, equity-oriented Mutual Funds, etc. Fixed-income instruments include government bonds, debentures, fixed deposits, etc.

• If this happens, the deposit made will be seen as an investment in capital gain bonds in India, wherein tax exemption can be availed as per the regulations stated under the Capital Gains Account Scheme, 1988.
• 54EC bonds, more popularly known as capital gain bonds, are fixed income instruments that offer exemption from capital gains tax to investors, as per section 54EC.
• Capital gain bonds come with zero risks of repayment and interest.
• In Union Budget 2017, the Finance Minister talked about introducing newer bonds to boost the market.
• The Income Tax Act provides relief in the form of exemption on the capital gains generated from the sale of such long-term capital assets.

54EC bonds are issued by government backed infrastructure companies, which reduces the risk involved in purchasing such bonds. 54EC bonds are popular investment instruments as investing in 54EC bonds allows investors to claim tax deductions on long-term capital gains. If the individual fails at investing within the specified time frame, he/she can also deposit the amount in a Public Sector Undertaking (PSU) bank. In that case, the deposit will be viewed as an investment in capital gains bonds in India upon which tax exemption will be available under the Capital Gains Account Scheme, 1988. However, if such deposit does not convert to an investment within 2 years, it will be treated as a short-term capital gain in the year of expiry.

The Indian Railway Finance Corporation (IRFC), National Highways Authority of India (NHAI), Power Finance Corporation (PFC), and Rural Electrification Corporation (REC) are some of the entities that issue such bonds. To understand Section 54EC more clearly, let us consider an example. The capital gains earned from the sale of the building were around Rs. 70 lakhs. Hence, assuming Mr X decides to invest the amount earned within half a year from the date of sale, he is eligible to claim up to Rs. 50 lakhs as per the exemption stated under Section 54EC. Finance Act 2018 has extended the time period to 5 years , earlier it was 3 years only.

You can invest capital gains arising from sale of assets such as land or building up to Rs. 50 lakh in capital gains bonds to avail tax exemptions under Section 54EC. Investors can invest up to Rs. 50 lakhs in these bonds, and the interest earned is taxable as per the investor’s income tax slab. Investors looking to save taxes on long-term capital gains can consider investing in these bonds. 54EC bonds are specifically meant for investors earning long-term capital gains and would like to get exemption on these gains. Investors who purchase capital gains bonds are known as debt holders.

e-Book on Capital Gain Tax on sale of Property

Investments in bonds can also be done to save on long-term capital gains tax. Are you looking to sell your property but are worried about paying tax for gains? 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.

Benefits of Capital Gains Bonds

These bonds typically have a lock-in period of 5 years and offer an interest rate ranging from 5% to 6% per annum. The maximum investment that can be made in these bonds is Rs. 50 lakhs per financial year. However a quick calculation shows that you are better off investing in EC bonds, if you are not looking forward to invest in equity mutual funds and are ready to take risk. In general it’s usually a good idea to put money in 54 EC bonds and over 5 yrs, you will have decent amount of money. The exemption claimed under section 54EC would be withdrawn, in case the long term specified asset is transferred or converted into the money before the expiry of the period of three years or five years, as the case may be. Under Section 54EC of the Income Tax Act, the comparable tenure of capital gain bonds is five years.

What are the Features of the Capital Gain Bonds?

Capital gain bonds issued by the NHAI (National Highways Authority of India) or the REC (Rural Electrification Corporation of India) help in saving tax. All categories of persons are eligible to avail exemption benefit under section 54EC of the Income Tax Act. Capital gain not to be charged on investment in certain bonds. 54EC Bonds are AAA Rated secure bonds and only issued by government backed PSUs. Typically, these bonds are offered by government-backed institutions such as the Rural Electrification Corporation (REC), Indian Railway Finance Corporation (IRFC), and Power Finance Corporation (PFC). 54EC bonds have the highest safety rating (“AAA”) and are issued by central PSUs, ensuring no repayment or interest risk.

C BONDS – CAPITAL GAIN BONDS ISSUED UNDER SECTION 54EC

This interest is taxable in the hands of the assessee and is taxed at the applicable slab rates. The maximum exemption under this section is up to Rs 50,00,000. 54EC bonds, more popularly known as capital gain bonds, are fixed income instruments that offer exemption from capital gains tax to investors, as per section 54EC. The tax liability when it comes to long-term capital gains from the sale of immovable real estate or property can be significantly minimised by buying 54EC bonds. Capital gain bonds, also known as 54EC bonds, are tax exempt bonds that allow investors to enjoy tax exemptions, under section 54EC, on capital gains made from property sale.

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