Capital Gain Bonds, also known as 54EC Bonds, are a government-backed investment designed to help individuals save on long-term capital gains tax. If you have sold a property and made a profit, investing in these bonds allows you to eliminate tax liability up to Rs 50 lakh, provided the investment is made within six months of the sale/transfer.
Issued by Navaratna institutions (PSUs), these bonds offer a fixed interest rate and come with a five-year lock-in period, making them a secure and tax-efficient investment choice.
Let us take an example of an investor who sold the property 3 Years after buying the same
| Category | Amount |
|---|---|
| Purchase price of property | ₹ 46,00,000 |
| Selling price of property | ₹ 1,00,00,000 |
| Long Term Capital Gain on property | ₹ 54,00,000 |
| Investment in 54EC bonds | ₹ 50,00,000 |
| Tax saving (12.5%) | ₹ 6,75,000 |
| Interest earned @5.25% p.a. for 5 Years (taxable) | ₹ 13,12,500 |
Disclaimer: LTCG Tax on property held over 24 months is 12.5% or 20% with indexation
|
Issuer Name
|
Rating | Tenure | Investment Limit | Interest (p.a.) | |
|---|---|---|---|---|---|
|
Rural Electrification Corporation
|
AAA | 5 years | Upto 50 Lakhs | 5.25% | Invest |
|
Power Finance Corporation
|
AAA | 5 years | Upto 50 Lakhs | 5.25% | Invest |
|
Indian Railways Finance Corporation
|
AAA | 5 years | Upto 50 Lakhs | 5.25% | Invest |
|
Housing and Urban Development Corporation Limited
|
AAA | 5 years | Upto 50 Lakhs | 5.25% | Invest |
Avail tax exemption under Section 54EC by investing up to ₹50 lakh within six months of the sale / transfer of property.
Issued by reputable public sector entities, ensuring safety.
Earn steady interest (subject to taxation)
No market dependency; just invest and hold in DEMAT.
If you make long-term capital gains from the sale / transfer of property you can invest in these bonds.
You must invest the capital gains amount in 54EC Bonds within six months from the date of sale.
The invested amount is locked in for 5 years, and premature redemption is not allowed.
The bonds offer an annual interest rate, which is taxable as per your income slab.
Once the tenure is over, you receive the principle amount back.
If you have sold a residential or commercial property and want to reduce the amount of capital gains tax paid, investing in 54EC Bonds can help.
Since these bonds are backed by Navratna institutions (PSUs) like PFC, IRFC and REC, they are a secure option for investors who prioritize capital safety and fixed returns.
54EC Capital Gain Bonds are a type of financial instrument issued by specified institutions in India. These bonds provide a tax-saving option for those who have incurred long-term capital gains from the sale / transfer of long-term capital assets such as land, building or both. Any capital gains invested in these bonds would be exempted from tax u/s 54EC.
Yes. Individuals must invest their capital gains within 6 months from the date of asset sale / transfer in order to avail tax exemption.
These bonds are typically issued by government-approved entities, such as Indian Railways Finance Corporation (IRFC), Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).
The primary purpose is to defer the tax liability on long-term capital gains by investing the proceeds from the sale of capital assets (land, building or both) in these bonds. This allows taxpayers to save on capital gains tax.
Yes. The lock-in period for these bonds is 5 years from the date of purchase. You cannot redeem or sell these bonds before the completion of this period.
