Understanding Capital Bonds: A Comprehensive Guide to 54EC Bonds for Indian Investors

Do note that there is a cap on the capital gain that can be reinvested in a 54EC Bond, and the limit has a ceiling of Rs.50 lakh. Yes, investors have the flexibility to hold 54EC Bonds in Demat accounts or in physical form based on their preference. The lock-in period for 54EC Bonds is 5 years, during which the invested amount cannot be redeemed or transferred. The amount should be invested within a period of 6 months from the date of transfer. As per the Finance Act (no.2) 2014 amendment, you can’t invest more than Rs. 50 lakh in the capital bonds under Section 54EC. You can consider investing under section 54F or 54 to invest more than Rs. 50,00,000.

1. When a taxpayer sells long-term immovable property (land or building or both), they have the option to avail capital gain exemption under Section 54EC by investing in certain bonds.
2. Section 54EC allows exemption by investing in specific bonds like NHAI, REC, PFC, or IRFC.
3. However, the interest gained is taxable and must be mentioned during the tax return filing.
4. Yes, NRIs can claim the exemption the exemption under section 54EC of the Income Tax Act.
5. These are bond for capital gain tax exemption, and so individuals and HUFs can apply.
6. However, the interest earned is taxable as per the income tax slab.

The date of allotment of the bonds is considered as the date of investment. The exemption claimed under section 54EC would be withdrawn, in case the long term specified asset is transferred or converted into the money before the expiry of the period of three years or five years, as the case may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. Section 54EC exemption is available only towards the capital gain arisen on account of transfer of long term capital asset (being land or building or both). However, many of us would be contemplating ways to minimize the capital gains tax (CGT) we must be liable to pay in the current tax year, or look at an exemption up to a certain limit for any CGT applicable.

Q- What is the time limit for investing in Section 54EC bonds?

54EC bonds are specific types of bonds issued by government-approved entities like the Power Finance Corporation Limited (PFC), Indian Railways Finance Corporation Limited (IRFC), and the Rural Electrification Corporation (REC). Selling capital assets triggers tax on profits as capital gains, but tax can be avoided. Section 54EC allows exemption by investing in specific bonds like NHAI, REC, PFC, or IRFC.

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The income earned from the long-term capital gains will be taxable from the year you obtained the loan. NRIs can buy capital gains bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC), etc. to save tax on their long-term capital gains from the sale of their property in India. In case of transfer / conversion, the amount of exemption claimed under section 54EC shall be deemed to be income under ‘Capital Gains’ as long term capital gain in the previous year in which the long term specified asset is transferred or converted. 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.

54EC Bonds are for investors looking to economise capital gain taxes. To avail the tax exemption, you need to invest in these bonds within 6 months of the date of the sale of the property. 54EC bonds are issued for a lock-in period of 5 years and are non-transferable at any point of time. NRI Investment in Bonds is a very popular and rewarding opportunity.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone. Investors need to make an investment in 54EC Bonds within 6 months from the stockholders equity section of the balance sheet the date of the sale of their asset generating capital gains.

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However, interest rates are subject to revision by the respective Companies/Government from time to time. 54EC Bonds are issued by PSU’s notified by the government ( REC , PFC , NHAI and IRFC). Capital gain bonds are safe, secure and offer a decent rate of interest. You can apply for the 54 EC bonds offline (Physical) and online. All categories of persons are eligible to avail exemption benefit under section 54EC of the Income Tax Act.

Most importantly the taxpayer will have to, within 6 months of sale or transfer, reinvest the proceeds from the sale of a long term asset into a 54EC bond. Finance Act 2018 has extended the time period to 5 years , earlier it was 3 years only. The taxpayer must invest the capital gains or the net consideration, whichever is lower, in Section 54EC bonds within six months from the original asset’s sale date.