The minimum investment allowed is Rs. 10,000 and maximum is Rs. 50 lakh. 54EC bonds are issued for a lock-in period of 5 years and are non-transferable at any point of time. There is a negative perception about perpetual bonds real estate accounting after the YES Bank fiasco. The risk factors that got highlighted after the YES Bank AT1 write-off have always existed, but came into action and hit investors. Having said that, there are front line banks such as SBI, HDFC Bank and the like that are worth investing in. You can apply through your broker if you are interested in investing in 54EC bonds.

Key Facts to Avail the LTCG Exemption by Investment in Capital Gain Bonds

As always, you need to align your investment decisions in light of your financial goals and the capability and strategy of tax planning. This way, you make most of your investments in 54EC bonds. 54EC bonds are specific types of bonds issued by government-approved entities like the Power Finance Corporation Limited (PFC), Indian Railways Finance Corporation Limited (IRFC), and the Rural Electrification Corporation (REC). Assume, for instance, that there is long-term capital gains of ₹50 lakh that is taxable, after indexation benefit as applicable. A sum of ₹50 lakh invested in 54EC bonds would fetch a defined return of 5 per cent per year. This coupon/interest is taxable at, say, 30 per cent (your marginal slab rate), ignoring surcharge and cess for simplicity.

What is Section 54EC of the Income Tax Act?

In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments. Schedule a call with an investment expert to get complete help regarding investment in 54EC Bonds in India.

Key Features of 54EC Bonds

No, you can’t redeem the investment before the maturity of bonds i.e. before 5 years from the date of investment. If you redeem bonds before their maturity, the exemption granted under Section 54EC will not be granted and you will have to pay LTCG tax on the original capital gains amount. We assume 7.5 per cent to strike a balance between risk (higher yield but higher risk) and reward (lower yield but lower risk). Taxation at 30 per cent how to start a virtual bookkeeping business in 5 simple steps means a net return of approximately 5.25 per cent.

With just over a few months left in the current tax year, many of us would already be doing year end tax planning and sussing out options to invest to either gain a tax deduction or tax exemption. We all have Rs.150,000 covered under section 80C in capital budgeting the form of PF or FDs or like. And an additional deduction allowed up to a limit of Rs.50,000 under section 80D. To avail the tax exemption, you need to invest in these bonds within 6 months of the date of the sale of the property.

The lock-in period for 54EC Bonds is 5 years, during which the invested amount cannot be redeemed or transferred. The amount should be invested within a period of 6 months from the date of transfer. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.

1. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources.
2. NRI Investment in Bonds is a very popular and rewarding opportunity.
3. Subsequent to paying the tax of ₹10 lakh, what remains with you for investment is ₹40 lakh.
4. As always, you need to align your investment decisions in light of your financial goals and the capability and strategy of tax planning.

For our comparison, we assume a yield (i.e. annualised return) of 4.25 per cent for investing in tax-free PSU bonds. ₹50 lakh invested in 54EC bonds, compounding at approximately 3.5 per cent per year, grows to ₹59.38 lakh after five years. ₹40 lakh, which is the net amount that remains in case of option (b), invested at 4.25 per cent tax-free, grows to ₹49.25 lakh after five years. Hence, investing in 54EC bonds at 5 per cent (pre-tax) is a better option than paying the LTCG tax and investing the remaining amount.

Against ₹59.38 lakh in case of 54EC bonds, ₹40 lakh invested at 5.25 per cent grows to ₹51.6 lakh after five years. Though somewhat higher than the ₹49.25 lakh from tax-free bonds, this is lower than the ₹59 lakh from 54EC, bonds making the latter a better option. The assessee has invested the amount of capital gain (wholly or partly) in the long term specified assets.