54EC BONDS – CAPITAL GAIN BONDS ISSUED UNDER SECTION 54EC
CAPITAL GAIN BONDS
INVEST TO SAVE LONG TERM UNDER SECTION 54EC.
Capital Gain 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.
Key Features of Capital Gain Bonds specified under Section 54EC:
1. Non transferable and non negotiable bonds
2. No TDS but interest earned is taxed
3. AAA credit rating by ICRA, CRISIL and India Ratings and Research Private Limited
4. Maximum investment is Rs. 50 lakh
5. Maximum of 500 bonds can be bought at Rs. 10000 per bond
6. Annual interest rate at 5.75%
7. Tenure of the bond is 5 years
8. Available in Physical as well as demat form
According to section 54EC of I.T., any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of a long-term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less.
The interest rate offered on these bonds is 5.75% per annum. The exemption is subject to:
• The investment is made within a period of 6 months from the date of transfer of the asset
• Lock-in period to 5 years from 3 years. This amendment will take effect from 1st April 2019
• Bonds sold, transferred or converted into money or any loan or advance taken on the security of such bond within a period of 3 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds
• Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual.
• If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.
Those who wish to save taxes on LTCG can invest the amount in the capital gains bonds within six months from the date of arising profit. By investing in 54 ec Capital gain bond one can save up to Rs 50 Lakh in a single financial year. These instruments are not only capital protected instruments, but they also provide a steady stream of income to you.