Investors need to make an investment in 54EC Bonds within 6 months from the date of the sale of their asset generating capital gains. Capital gains bonds are a great option for anyone looking to save on taxes paid. Through this, they also become a participant in the bond market, which requires more investors. It can be considered a benefiting situation for both the investor and the economy. Bonds or any form of security is introduced through the primary market. Any entity which requires funds can throw access these bonds for issuance.

C Bonds: A Guide to Capital Gains Tax Exemption

According to the Income Tax Act, you are liable to pay tax for such gains. However, you can reduce the liability of these taxes.Invest in section 54EC bonds, also commonly known as capital gain bonds, to avail tax deductions in the future. The bonds are issued as per complete collar colors the provisions of the section 54EC of the IT Act.

What is Section 54EC of the Income Tax Act?

54EC bonds do not allow any tax exemption on short-term capital gains tax. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and IRFC (Indian Railways Finance Corporation Limited). After putting his apartment in the market for three long years, 55-year-old Suresh Pradeep was in for a shock when his CA asked him to keep about ₹15-16 lakh as tax aside of the ₹80 lakh received from the buyer. Suresh was hoping the ₹80 lakh full proceeds would serve a neat retirement corpus, but now he is looking at ways to save on tax. The tax on long term capital gain (LTCG) is 20 per cent can be a hefty one. While you can save your tax bill by investing the proceeds in another property, but that doesn’t help much.

1. It is because these bonds are only desirable when an individual prefers to save through tax exemption when they generate capital gains from selling a property.
2. This factor depends on the rate of return as well the maturity period on other investments.
3. These bonds are dominantly from the government bodies such as Government bonds, Municipal bonds, capital gains bonds, etc.
4. We shall Call/SMS you for a period of 12 months.Brokerage will not exceed SEBI prescribed limits Disclaimer  Privacy Policy Any Grievances related the aforesaid brokerage scheme will not be entertained on exchange platform.
5. Most importantly the taxpayer will have to, within 6 months of sale or transfer, reinvest the proceeds from the sale of a long term asset into a 54EC bond.
6. Before we go into further details about reinvesting in 54EC bonds, let’s look at what section 54EC of the Income Tax Act talks about.

Edelweiss Financial Services Limited- A Review of Bond Public Issue

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. They are- REC (Rural Electrification Corporation), PFC (Power Finance Corporation) and IRFC (Indian Railway Finance corporation). These three PSUs have come up with new series of 54EC bonds for FY24 at 5.25 per cent.

The lock-in tenure as well the interest rate on these bonds is determined beforehand. Therefore if you are looking for tax exemption on LTCGs, you need to monitor this market closely. Bonds are one such fixed-income financial instrument which can also be considered as interest-bearing debenture certificates. These bonds are open to the financial market as well individuals dealing in the stock market. 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.

Download Black by ClearTax App to file returns from your mobile phone. Since the maximum limit for investment is ₹50 lakh, investors seeking diversification can split the proceeds and invest in the bonds of these companies. Investors can park the funds in the bonds of IRFC and PFC or REC (since PFC is the parent company of REC).

Section 54EC- Deduction on LTCG Through Capital Gain Bonds

Check out our Tax Planning Optimizer tool that helps you save taxes beyond Section 80C. Yes, the exemption under Section 54EC can be claimed multiple times related to the same property, subject to the overall limit of Rs.50 lakhs finding your true cost of goods manufactured per financial year. According to Crisil, PFC and REC have dominant positions in power sector financing space and have strategic importance due to Government of India (GoI) ownership. However, most of its clients are from the power sector, including discoms, who do not necessarily have strong asset quality. Ratings agencies opine that IRFC is favourably placed as it derives most of its business from GoI.

Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. In case if the capital gain bonds are converted into cash before the period of maturity, then the amount so invested on which tax exemption are health insurance premiums tax deductible was claimed, shall be taxable as long-term capital gain in the year of conversion. The 54ec capital gain bonds are tax exemption bonds, allow you to avoid paying tax on capital gains arising from selling property. These bonds continue to be tax exempted, and no tax is deducted at the source. However, the interest gained is taxable and must be mentioned during the tax return filing.