Capital Gains Bonds Under Section 54EC of IT Act

What are Capital Gain Bonds?

The Capital Gain Bonds are also known as the Section 54EC bonds. It provides a way to decrease the long-term capital gains tax on assets or property that are held for more than 24 months.

You can also invest the gains within the six months of availing the tax deduction. The maximum amount to invest is Rs 50 lakhs in a single financial year.

Provisions of Capital Gain Bonds 54EC

The asset should be a long-term capital asset, and you have to hold it for at least 24 months before selling it. The long-term capital gains from the transfer of the capital asset can be deducted from the taxes under section 54EC of the Income Tax Act, 1961, if you meet the following conditions:

• The total capital again should be invested in the Section 54EC bonds within the 6 months of transfer.
• You have to keep the investment bonds for at least five years.
• If you invest less than the capital gains, then the tax deductions are only applicable to the specific amount.
• The maximum amount of investment is Rs 50 lakhs in a financial year.

Features of Capital Gain Bonds

The capital gain bonds are more preferred for investment purposes because they provide tax deductions on the long-term capital gains. The features of the 54EC bonds are:

• Safety: These bonds are very safe as they have a rating of AAA, and they ensure high creditworthiness.
• Interest: The interest earned on these bonds is taxable, but the TDS is not deducted, and the wealth tax is exempted from it.
• Tenure: These bonds have a compulsory lock-in period of 5 years, and they cannot be transferred to anyone.
• Investment Amount: The minimum investment that you can make is one bond, which costs around Rs 10,000, and you can invest in a maximum of 500 bonds, which is Rs 50 lakhs in a fiscal year.
• Interest Rate: The annual interest rate of these bonds is 5.25%.