Investors can benefit from tax exemption on capital gains under Section 54EC of the Income Tax Act 1961 by investing in 54EC capital gain bonds. These bonds offer savings on long-term capital gains from selling property if the investment is made within six months of the sale. The maximum investment limit for these bonds is Rs. 50,00,000 per financial year. Starting from April 1st, 2023, The interest rate on these bonds has increased to 5.25% per annum . It's important to remember that the interest earned on these bonds is subject to income tax.
54EC bonds have the highest safety rating ("AAA") and are issued by central PSUs, ensuring no repayment or interest risk.
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Typically, these bonds are offered by government-backed institutions such as the Rural Electrification Corporation (REC), Indian Railway Finance Corporation (IRFC), and Power Finance Corporation (PFC).
Why has the National Highways Authority of India (NHAI) decided to stop offering "54EC capital gain bonds" for the year 2022-23, and what steps are they taking regarding applications and refunds for these bonds?
The National Highways Authority of India (NHAI) has decided to stop offering a type of investment called "54EC capital gain bonds" for the year 2022-23. They've told banks not to accept any new applications or money for these bonds starting from September 3, 2022.
If someone's money was added to these bonds' accounts after September 3, 2022, NHAI will give that money back. If investors were hoping to use these bonds to avoid paying some taxes on their profits, they'll need to work with the banks or financial companies they dealt with, as NHAI won't be responsible for that part.
This decision might be because the government told NHAI to be careful about borrowing money for the next three years, so they don't end up owing too much. NHAI already has a lot of debt, around ₹3.44 trillion as of January 2022.
54EC bonds offer 5.25% rate of interest payable annually.
Amount of 1 bond is 10,000/- and for PFC, IRFC, REC the minimum number of bond should be 2 that is 20,000/- for each and the maximum investment in 54EC bonds is 500 bonds amounting to Rs 50 lakhs in a financial year.
54EC bonds come with a lock-in period of 5 years (effective from April 2018).
The 54EC bonds cannot be transferred from one person to another at any point in time.
No TDS is deducted for resident individual however TDS will be deducted for NRIs. Interest is taxable as per investor income slab for all investors
Investing in 54EC Bonds can be a good option for investors who are looking for tax benefits and a guaranteed return. These bonds are issued by government-approved entities and offer tax benefits under Section 54EC of the Income Tax Act, 1961. By investing in these bonds, investors can claim deductions on long-term capital gains, which can help reduce their tax liability.
Moreover, 54EC Bonds offer a fixed rate of return that is guaranteed by the government. This makes them a low-risk investment option, as they are backed by the government. Additionally, the lock-in period of 5 years makes these bonds a good option for long-term investment.
Investing in 54EC Bonds can also help diversify an investor's portfolio. By adding this type of investment to their portfolio, investors can spread their risk and reduce the impact of market fluctuations. However, it's important to note that while 54EC Bonds offer tax benefits and a guaranteed return, they may not be suitable for everyone. Investors should carefully consider their financial goals, risk tolerance, and investment horizon before investing in these bonds.
Individuals, Hindu Undivided Families (HUFs), and corporate entities are eligible to invest in 54EC Bonds.
It's important to note that the investment in these bonds must be made within 6 months from the date of the sale of the asset generating capital gains. Additionally, the capital gains that are invested in these bonds must be long-term capital gains, which are gains from the sale of an asset that was held for more than 2 years.
There is no upper limit on the amount that can be invested in these bonds, however, the maximum deduction that can be claimed under Section 54EC of the Income Tax Act, 1961 is Rs. 1.5 lakh in a financial year.
It's also worth noting that these bonds are issued by specific government-approved entities, and investors must ensure that they are investing in bonds issued by one of these entities to be eligible for tax benefits. Investors should check the eligibility criteria and other requirements before investing in 54EC Bonds.
Any one of the following for address proof:
All documents (as applicable) attested by any Partner/Notary
All documents (as applicable) attested by Trustee/Notary
All documents (as applicable) attested by Company Secretary/Director
1. What is section 54EC of Income - tax Act ?
Section 54EC of Income-tax Act provides exemption in respect of long term capital gain which arises during sale/transfer of Land or building or both.
2. Can I claim exemption under section 54EC in respect of short term capital gain ?
No, exemption under section 54EC can be claimed only in respect of long term capital gain.
3. When should I purchase 54EC bonds to claim exemption under section 54EC ?
Investor should purchase 54EC Bond within 6 months from the date of transfer of land/ building.
4. Who can claim exemption under section 54EC ?
5. What is the maximum amount of exemption under section 54EC ?
Exemption under section 54EC is available to all assesses.
6. What is Maturity Period of the 54EC bonds ?
The amount of maximum exemption is 50 lacs per PAN and per financial year.
7. Bonds eligible for exemption under section 54EC of I-T Act
(i)RECL (Rural Electrification Corporation Ltd)(ii)IRFC (Indian Railway Finance Corporation Ltd) (iii)PFCL (Power Finance Corporation Limited).
8. What will happen if the sold property had two holders ?
If property is in the name of two people then both can avail the tax benefit of 50 lac each.
9. Is Interest earned from capital gain bonds is taxable ?
Yes, the interest earned from these bonds is taxable.
10.Where we can get TDS certificate for 54 EC bond ?
No TDS is deducted on interest from 54EC bonds.
11. can we buy 54Ec bonds online ?
12. what are the mode available to hold the bond ?
Both Physical and Demat mode is available.
13. what is the credit rating of the 54 EC bonds ?
54EC Bonds are AAA Rated secure bonds and only issued by government backed PSUs.
14. where and when will the interest of bonds credit ?
Bonds interest will credit in the bank which investor provided while filling application form.
Interest payment date of the bonds are as follows -:
(i)REC – 30th June
(ii)PFC – 31st July
(iii)IRFC – 15th October
RR has been an authorised broker/arranger with all issuers of Capital Gain Bonds since their inception. RR is also among the top mobilizers of capital gain bonds in India. We have a pan-India presence through our network and offices.
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