54EC Bonds (Capital Gains Bonds)

This page provides all the details you need to know about the 54EC Bonds (Capital Gains Bonds).

What is 54EC Bonds?

54EC Bonds is NOT a name of a bond. It is the name of a category.

There are a few bonds that provide long term capital gains tax exemption under Section 54EC of the Income Tax Act. Hence, they got the name "54EC Bonds". 

This bond is also known as Capital Gains Bonds.

If you get long term capital gain (LTCG) by selling your real estate property (land or building or both), then you have to pay long term capital gains tax. There are a few methods in which you can avoid paying long term capital gains tax.

One of the methods is to invest the long term capital gain amount in 54EC bonds.

Please note that

• 54EC bonds is specifically for those who wants to avoid long term capital gains tax from the sale of a real estate property (land or building or both). Both residential and commercial properties will be considered

• Long term capital gains from other capital assets such as Shares, Mutual Funds, Gold or Bonds will NOT be allowed to invest in 54EC bonds

• Short term capital gains from any of the capital assets will NOT be allowed to invest in 54EC bonds

• You should invest in 54EC bonds within 6 months from the date of sale of the real estate property to get long term capital gains tax exemption under Section 54EC of the Income Tax Act

History of 54EC Bonds

Section 54EC of the Income Tax Act was introduced back in 01-Apr-2001.

Earlier, the long term capital gain from any capital asset was allowed to invest in 54EC bonds to get exemption.

But, from 01-Apr-2018 onwards, only the long term capital gain from the real estate property (land or building or both) was allowed to get exemption.

How does 54EC Bonds work?

• Deposit the long term capital gain amount from the sale of a real estate property and purchase the bond. A maximum of Rs. 50 lakhs will be allowed to invest

• You'll receive the interest amount every year for the period of 5 years

• At the end of 5 years, you'll get your deposit amount back

Features

• Backed by the Government of India

• Safest way to avoid long term capital gains tax from a sale of a real estate property

• Guaranteed returns

• Regular yearly income

• People of all the age groups can invest (including NRIs)

• Nomination facility

Income Tax Benefits

The income tax benefits will be the same on both old and new tax systems.

The lump sum deposit amount (long term capital gain from a sale of real estate) won't get any tax deduction benefit under Section 80C of the Income Tax Act.

The interest amount that you receive every year is taxable. During tax returns, you need to declare the interest income under "Income from Other Sources" and pay the income tax as per your income tax slab.

TDS (Tax Deducted at Source) is NOT applicable in this bond.

Capital Gains Tax (CGT) is not applicable for this bond as you can't sell it on the Secondary market (Share market).

Who can Purchase this Bond?

54EC bond is NOT for everyone.

This bond is specifically for those who wants to avoid long term capital gains tax from a sale of a real estate property (land or building or both).

People of all the age groups can purchase this bond to get long term capital gains tax exemption.

NRI

NRI (Non Resident Indians) are eligible to purchase this bond.

If an NRI wants to avoid long term capital gains tax from a sale of a real estate property, then he can invest in this bond.

Where can You Purchase the Bond?

This bond is provided by the following companies. These companies are backed by the Government of India.

• National Highways Authority of India (NHAI)

• Rural Electrification Corporation (REC)

• Power Finance Corporation (PFC)

• Indian Railway Finance Corporation (IRFC)

These companies are selling the bonds through some of the Banks. You can submit an application in one of the following Banks to purchase this bond.

The bond provider and the corresponding Banks are given below.

National Highways Authority of India (NHAI):

• Union Bank of India
• HDFC Bank
• Axis Bank
• Canara Bank
• ICICI Bank
• IDBI Bank

Rural Electrification Corporation (REC):

• Union Bank of India
• HDFC Bank
• Axis Bank
• Canara Bank
• ICICI Bank
• IDBI Bank
• IndusInd Bank

Power Finance Corporation (PFC):

• HDFC Bank
• Canara Bank
• ICICI Bank
• IndusInd Bank
• Yes Bank
• Kotak Mahindra Bank

Indian Railway Finance Corporation (IRFC):

• HDFC Bank
• Axis Bank
• Canara Bank
• ICICI Bank
• IDBI Bank
• State Bank of India (SBI)

How do You Purchase the Bond?

You can purchase the bond using

• Cheque

• Demand Deaft (DD)

• Online

You can hold this bond in either physical format or demat format.

Deposit Limits

The minimum and maximum deposit limits per financial year are given below.

• the minimum deposit amount is Rs. 20,000 for REC, PFC and IRFC. But, for NHAI, the minimum deposit amount is Rs. 10,000

• the maximum deposit amount is Rs. 50 Lakhs

• the deposit amount should be in multiples of Rs. 10,000

There is one condition about the maximum deposit amount.

The long term capital gain amount from a sale of a property in a financial year should not be split across two financial years.

Example:

Let us assume you sold your property in the month of December and got a capital gain amount of Rs. 1 crore. You have 6 months time to invest this amount in 54EC bonds. In this scenario, you should not split Rs. 1 crore across two financial years. You can't invest Rs. 50 lakhs in March (current FY) and then you can't invest the remaining Rs. 50 lakhs in April (next FY).

So, the maximum amount you can invest is Rs. 50 lakhs only. For the remaining amount, you need to look for other methods.

Maturity Period

The maturity period of this bond is 5 years.

At the end of 5 years, you'll get your entire deposit amount back.

Note:

Earlier, the maturity period was 3 years only. But, from 01-Apr-2018 onwards, the maturity period was increased to 5 years.

Interest Rate (%)

The current annual interest rate is 5.00%.

The interest amount will be paid to you every year from the date of purchase.

But, the interest payment date varies from one company to another. The below table provides the interest payment date of the bond provider companies.

The interest rate (on the day of purchase) will remain the same throughout the tenure. It will not change even if there are changes to the interest rate thereafter.

There is no cumulative (compounding) option available in this bond. It means that the interest amount will not compound in this scheme. Only the interest payout option is available. So, you have to receive the interest amount every year.

Note:

Earlier, the interest rate was 5.75% for this bond. But, it was reduced to 5% from 01-Aug-2020 onwards.

Compounding Frequency

Compound interest is not applicable in this scheme as there is no cumulative option available in this bond.

Only simple interest calculation is followed in this scheme.

Interest Credit Method

The yearly interest amount from the bond will be paid directly to your Savings Bank (SB) account that you provided at the time of bond purchase.

Pre-Mature Closure

Pre-mature closure option is not available in this bond as you can't sell this bond on the secondary market. Also, you can't transfer this bond to another person.

What if You Die during the Term?

Unfortunately, if you die during the tenure of the bond, then the bond will be transferred to your nominees or legal heirs.

The nominee should hold the bond till the maturity date.

Bond Transfer & Tradability

This bond can't be transferred to another person.

Also, this bond is not tradable on the secondary market (Share Market). It means that you can't sell these bonds in the secondary market.

Loan Facility

There is no loan facility available in this bond.

Also, you can't use this bond as a collateral security to get loans from the Banks, Financial Institutions or Non-Banking Financial Companies (NBFC).

Nomination

Nomination facility is available in this bond.

You can nominate one or more people as your nominees. Also, you can change nominations at any time during the tenure of the bond.