Sold Your Property? Save Tax on Capital Gains
Capital Gain Bonds are an ideal choice if you are looking for a safe and tax-efficient way to preserve your capital gains instead of paying a hefty tax.
What are Capital Gain Bonds?
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
h6
true
twoCol
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
54EC Bond Offerings
h3
true
sixCol
Issuer Name
Rating
Tenure
Investment Limit
Interest (p.a.)
Benefits of Capital Gain Bonds
Tax Savings
Avail tax exemption under Section 54EC by investing up to ₹50 lakh within six months of the sale / transfer of property.
Government-Backed
Issued by reputable public sector entities, ensuring safety.
Fixed Returns
Earn steady interest (subject to taxation)
Hassle-Free Investment
No market dependency; just invest and hold in DEMAT.
How Capital Gain Bonds Work
Sell a Capital Asset
If you make long-term capital gains from the sale / transfer of property you can invest in these bonds.
Invest Within 6 Months
You must invest the capital gains amount in 54EC Bonds within six months from the date of sale.
Lock-in Period of 5 Years
The invested amount is locked in for 5 years, and premature redemption is not allowed.
Earn Fixed Interest
The bonds offer an annual interest rate, which is taxable as per your income slab.
Redeem After 5 Years
Once the tenure is over, you receive the principle amount back.
Who Should Invest in Capital Gain Bonds?
Real estate invetsors
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.
Risk-Averse Investors
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.
Frequently Asked Questions
5
What are 54EC Capital Gain Bonds?
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.
What are 54EC Capital Gain Bonds?
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.
Is there any time limit to invest in these bonds in order to avail tax exemption?
Yes. Individuals must invest their capital gains within 6 months from the date of asset sale / transfer in order to avail tax exemption.
Who issues 54EC Capital Gain Bonds?
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).
What is the purpose of investing in 54EC Capital Gain Bonds?
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.
Is there any lock-in period for 54EC Capital Gain Bonds?
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.
How much can I invest in 54EC Bonds?
You may invest in multiples of Rs 10,000/- each, subject to the following ceilings:
- Minimum: 2 Bonds of Rs 10,000/- each (i.e. Rs 20,000)
- Maximum: 500 Bonds of Rs 10,000/- each (i.e. Rs 50 Lakh)
Are there any interest pay-outs during the lock-in period?
Yes. 54EC Capital Gain Bonds offer annual interest pay-outs. The date of interest payment is fixed and differs from issuer to issuer. For IRFC: October 15th, PFC: July 31st, REC: June 30th every year
Are 54EC Capital Gain Bonds a safe investment?
Yes, these bonds are considered a safe investment because they are typically issued by government-approved entities “Navratna Companies” and are usually rated ‘AAA’ by credit rating agencies. Furthermore, they offer a fixed interest rate. However, like any investment, they do carry some level of risk, primarily related to interest rate fluctuations.
Is the interest income from these bonds taxable?
Yes, the interest income earned from 54EC Capital Gain Bonds is taxable as per your income tax slab. However, there is no Tax deduction at source (TDS) in these bonds.
Is it mandatory to have a DEMAT Account to invest in 54EC Capital Gain Bonds?
These bonds can be held in both demat form as well as physical certificate form. However, it is suggested to hold these bonds in demat form for better monitoring and tracking as these are long-term investments.
Who can apply (Eligibility to invest) in PFC’s Capital Gain Bonds?
Resident Individuals (RI)
Non-Resident Individuals (NRI)
Hindu Undivided Families (HUF)
Firms
Companies
Financial Institutions
Banks / Commercial RRB / Co-operative
Can I transfer or sell 54EC Bonds? Are these bonds listed on the stock exchange?
No. 54EC Bonds are Non‐transferable, Non‐Marketable, Non‐negotiable and cannot be offered as security for any loan or advance. Due to non-transferability, the bonds have not been listed on any stock exchange for purchase / sale. However, transmission of the Bonds to the legal heirs in case of death of the Bond holder / Beneficiary to the Bonds is allowed.
Can the bonds be owned jointly?
Resident Individuals and NRI can apply in joint names and a maximum 3 individuals can apply through a Joint Application. In case of application with Demat option, the sequence of joint applicant’s name must be same as mentioned in the Demat Account.
Can I avail nomination facility on 54EC Bonds?
Yes, nomination facility is available on 54EC Bonds. The sole Individual / NRI bondholder [or where the Bonds are held by more than one person, first bondholder along with other joint Bondholders being individual(s)] may nominate any one person (being an individual) who shall be entitled to bonds in the event of death of sole holder or all the joint holders, as the case may be. When the bonds are held by 2 or more persons, the nominee shall become entitled to receive the amount (on maturity) only on the demise of all the bondholders in succession. However, in case bonds are in Demat form, demographic and nominee details will be picked up from DP ID/CLIENT ID and the details of the nominee, if any, as mentioned in the application form will be invalid.
If you have 54EC Capital Gain Bonds in physical mode is it required to surrender the Physical Bond Certificate at maturity / redemption after 5 years?
You are not required to surrender the physical Bond Certificate of PFC’s 54EC Bonds on its redemption/maturity. The bonds will be automatically redeemed by PFC on maturity (i.e. on the expiry of 5 years from the deemed date of allotment) and the redemption proceeds would be paid to the registered bondholders.
*Please note Brokerage would not exceed the SEBI prescribed limit.