54EC bonds, or capital gains bonds, are one of the best way to save long-term capital gain tax. 54EC bonds are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains. Tax deduction is available under section 54EC of the Income Tax Act. 54EC bonds do not allow any tax exemption on short-term capital gains tax. Invest in 54EC bonds to get benefits of tax deduction. The maximum limit for investing in 54EC bonds is Rs. 50,00,000. The eligible bonds under Section 54EC are 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 other features.
Key Benefits of 54EC Bonds
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. Take a look at the benefits of investing in 54EC bonds.
Bonds offered under sec 54EC
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.
Large institutions also have huge capital requirements and so they take “Debt” periodically with a promise to pay back. And the guaranty assuring that promise is known as a bond. Unlike a Stock, Debt involves borrowing money with the PROMISE or Obligation to pay it back in full on Maturity, along with interest over time. That’s why debt instruments are also called Fixed income instruments
Most diversified investment portfolios contain some allocation each to stocks and bonds, where bonds are often considered the more conservative choice of the two.
There are several kinds of bonds available Like Tax-free bonds, RBI Bonds and Capital gain bonds.
One of the hugely-popular investment options, especially among high net worth investors, is tax-free bond. The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income
These bonds are generally issued by Government Backed entities and thus have very low default risk. And even though they have a tenure of 10-20 years, they are listed on stock exchanges to offer an exit route.
Another popular bond to avail Tax exemption is called 54 EC bond the best ways to save long-term capital gains tax from investments or sale of property. while you save tax by investing in these bonds, you also earn interest income on the same.
So, in a way, you get paid to save tax.
Give your portfolio stability and steady growth with the help of bonds.
Long-term capital gain is the gain that is derived out of a sale of an asset that has been held for more than a year. You can invest the gain in certain specified bonds to claim tax exemption within 6 months of the date of sale of the asset. Save tax on long-term capital gains by investing in 54EC bonds such as REC capital gain bonds, NHAI capital gain bonds respectively. Budget 2018 has proposed to amend the 54EC section of the Income Tax Act wherein capital gains arising only from the sale of assets such as land or building or both will be considered for tax exemption. It has also proposed to increase the lock-in period to 5 years from 3 years. This amendment will take effect from 1st April 2019.
The gains that arise on the sale of a Long Term Capital Gain Asset are known as Long Term Capital Gains and Capital Gains Tax is levied on such gains. However, such tax can be saved if this amount is invested in capital gain bonds specified under section 54 EC.
REC (Rural Electrification Corporation), NHAI (National Highways Authority of India) are the bonds eligible under Section 54 EC.
As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax under section 54EC of the Act if:
The entire capital gain realized is invested within 6 months of the date of transfer in eligible bonds.
Such investment is held for 5 years
To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond within 5 years from date of acquisition else, the benefit would be withdrawn.
If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.
The lock-in period will be 5 years with effect from April 1, 2019.
Rs. 50 lakh is the maximum amount that can be invested in these bonds.