RR has been an authorised broker/arranger with all issuers of Capital Gain Bonds since their inception. RR is also among the top mobilizers of capital gain bonds in India. There is no upper limit on the amount that can be invested in these bonds, however, the maximum deduction that can be claimed under Section 54EC of the Income Tax Act, 1961 is Rs. 1.5 lakh in a financial year. The bonds specified for4 investment under section 54EC are not listed on the stock markets. If the property is jointly owned, each owner’s capital gains will be determined and calculated separately. On the other hand, if the deposit is not converted into an investment within the 2-year mark, it will be deemed a short-term capital gain in the expiration year.

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 The exemption claimed under section 54EC would be withdrawn, in case the long term specified asset is transferred or converted into the money before the expiry of the period of three years or five years, as the case may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.

With just over a few months left in the current tax year, many of us would already be doing year end tax planning and sussing out options to invest to either gain a tax deduction or tax exemption. We all have Rs.150,000 covered under section 80C in the form of PF or FDs or like. And an additional deduction allowed up to a limit of Rs.50,000 under section 80D. An example would better explain the difference between 54EC bonds and other investment options and whether it is profitable for an investor to gain more from other investments even if they need to incur taxes on those. Such investment amount can be redeemed by the investor only after 5 years.

EC Capital Gain Tax Exemption

54EC are capital gain bonds, that is used to receive the capital gain tax exemption. If you have received capital gain from selling a property, you can invest in these bonds to avoid paying capital gain tax. Section 54EC is considered a very important section in the Income Tax Act since it provides individuals relief from tax on long term capital gains at an impressive rate of 20%.

• Tax on the Interest earned is also liable to be paid as the Interest is not tax-free.
• The maximum investment limit for these bonds is Rs. 50,00,000 per financial year.
• It’s also worth noting that these bonds are issued by specific government-approved entities, and investors must ensure that they are investing in bonds issued by one of these entities to be eligible for tax benefits.
• Through this, they also become a participant in the bond market, which requires more investors.
• Any individual who can generate a return of over 9.91% annually for the next 5 years, investing in capital gain bonds is not the best option.

Besides this, it also helps them profit from interest income on such bonds at an annual rate of 5.75%. 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. When a taxpayer sells long-term immovable property (land or building), they have the option to avail capital gain exemption under Section 54EC by investing in certain bonds.

Invest & Harvest

Selling capital assets and making a profit will result in taxation on those profits as capital gains. Nevertheless, there is a way to avoid this tax by investing the profits into specific assets. We will be discussing one such exemption given under Section 54EC in detail. Another factor that adds to the lower demand of these bonds is the capital gains bonds interest rate (5.25%) which is comparatively lower than other investment avenues. There are different kinds of bonds available in the market for an individual to choose from.

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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.

Types of Government Bonds in India: A Comprehensive Guide

By adding this type of investment to their portfolio, investors can spread their risk and reduce the impact of market fluctuations. However, it’s important to note that while use these fundraising email templates to reach your goal offer tax benefits and a guaranteed return, they may not be suitable for everyone. Investors should carefully consider their financial goals, risk tolerance, and investment horizon before investing in these bonds. If you want to save your capital gains, you will have to make your investments in 54 EC bonds within 6 months from the date of sale of the property or before filing your income tax returns. When you sell any capital asset like a house, gold, bonds or debt mutual funds over a long period, you generally make a PROFIT, which is called as Capital gains.

The 54ec capital gain bonds are tax exemption bonds, allow you to avoid paying tax on capital gains arising from selling property. These bonds continue to be tax exempted, and no tax is deducted at the source. However, the interest gained is taxable and must be mentioned during the tax return filing. These gains are subject to taxation according to the provisions of the Income Tax Act 1961. However, the government provides opportunities to claim tax exemptions. In this regard, you can reinvest your capital gains in Section 54EC bonds, also known as capital gains bonds, to claim tax benefits.

The option to invest in 2 houses is available once in lifetime in Section 54 but is not available in Section 54F. If the Assessee even takes a loan or advance on the security of such long term specified asset, he shall be deemed to have converted such long term specified asset into money on the date on which such loan or advance is taken. The bonds eligible for exemption under Section 54EC of the IT ACT include the ones issued by the REC, NHAI, PFC, and IRFC. Step 8 – Investors are required to attach an account payee cheque or a demand draft along with other essential enclosures at the specified outlets of collecting banks. The amount should be invested within a period of 6 months from the date of transfer. However, interest rates are subject to revision by the respective Companies/Government from time to time.

In case of selling house, these amounts can be quite big and if you reinvest these capital gains, you will not have to pay any taxes. Capital gain bonds come with zero risks of repayment and interest. Your annual income from interest earned on these bonds is guaranteed by the government of India. If you are selling your property and are looking for ways to avoid having to pay taxes, look no further than the 54EC bonds.

As we said above, an individual can invest in these bonds after receiving capital gains from selling a property, sale of land, or building (residential or commercial). Any individual who can generate a return of over 9.91% annually for the next 5 years, investing in capital gain bonds is not the best option. However, if they think that they will find it difficult to surpass the return rate of 9.91%, it would be best to invest in these bonds issued by NHAI & REC. Since these bonds are used to receive exemption on capital gains from sale of an asset held for a long period, you can invest in 54EC bonds if you have received capital gain from selling a property. Moreover, 54EC Bonds offer a fixed rate of return that is guaranteed by the government.

In this case, the amount already utilised by the assessee for the purchase/construction of the new house shall be eligible for exemption. To re-iterate, for claiming exemption under Section 54 –  the no. of houses already owned by the person is immaterial. He can still claim exemption by reinvesting the Capital Gains on Sale of House in another Residential House. 54EC bonds are issued for a lock-in period of 5 years and are non-transferable at any point of time.