However, interest rates are subject to revision by the respective Companies/Government from time to time. In case of the untimely death of a bondholder, the issuing entity shall recognise the administrator of the deceased. The company will consider their legal heir and transfer those bonds in the legal heir’s name. After completing all the above-mentioned formalities, your investment in these bonds would be complete. 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. 54EC bonds can be issued only by specific government-backed companies.
- Additionally, the capital gain exemption will be lost if the assessee does not comply.
- By purchasing 54 EC Bonds, investors can take advantage of the most tax-efficient option.
- 54EC bonds have the highest safety rating (“AAA”) and are issued by central PSUs, ensuring no repayment or interest risk.
- Only bonds issued by the National Highway Authority of India, Rural Electrification Limited, and Power Finance Corporation Limited are eligible to fall under this category.
54EC Bonds are AAA Rated secure bonds and only issued by government backed PSUs. Investor should purchase 54EC Bond within 6 months from the date of transfer of land/ building. As discussed earlier, the idea of many investors is to pay tax and take the remaining funds to greener pastures. Therefore we thought it could also be interesting to see how green the pasture should exactly be. The bonds eligible for exemption under Section 54EC of the IT ACT include the ones issued by the REC, NHAI, PFC, and IRFC.
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These are REC (Rural Electrification Corporation), PFC (Power Finance Corporation), and IRFC (Indian Railways Finance Corporation. There is no wealth tax or need for TDS to be deducted from interest income in 54EC bonds, and only Bond interest is taxable in the case of 54EC bonds. If you make a physical investment, you will get a bond certificate from the issuer. You will need to present the certificate when it comes time for maturity, so handle it with care. 54 EC Bonds are only available for purchase by individuals and Hindu Undivided Families (HUFs).
There is only one drawback to these bonds i.e. the maximum investment in any one financial year is capped at Rs 50 lakh. While by no means a small amount, however, the way property prices have spiraled, some investors found it was not enough to cover the entire amount of capital gains. Any individual who can generate a return of over 9.91% annually for the next 5 years, investing in capital gain bonds is not the best option. However, if they think that they will find it difficult to surpass the return rate of 9.91%, it would be best to invest in these bonds issued by NHAI & REC. Investors can enjoy tax exemptions under section 54EC of the Income Tax by purchasing these bonds.
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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. However, some smart investors found a loophole in Sec. 54EC and they took an advantage for investments in such bonds. Remember, one has six months to invest in the bonds from the time of earning the capital gain. So for instance if an investor needs a tax cover of more than Rs 50 lakh.
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Then he would time the sale for transaction between December and March of any year. In this way, the six month period overlapped two financial years which would in turn enable him (investor) to double the investible amount to Rs 1 crore. However, budget 2014 has plugged this loophole and now a maximum of Rs 50 lakh only may be invested for any transaction.
What is the maximum investment amount of these bonds?
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. 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. 54EC are capital gain bonds, that is used to receive the capital gain tax exemption.
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You can apply through your broker if you are interested in investing in 54EC bonds. If you want to purchase, you must do it within 6 months of transferring the asset. The minimum amount to invest is Rs 10,000 and maximum Rs 50 lakhs.
As the name goes by, these bonds are issued under Section 54EC of the Income Tax Act 1961. Only bonds issued by the National Highway Authority of India, Rural Electrification Limited, and Power Finance Corporation Limited are eligible to fall under what are the examples of contingent assets this category. Do note that there is a cap on the capital gain that can be reinvested in a 54EC Bond, and the limit has a ceiling of Rs.50 lakh. Check to see if the bonds are still available for investment after you have selected the issuer.
Any individuals, including Non-Resident Indians, and HUFs can apply for these bonds to get capital gains tax exemption. However, you need to buy these bonds within six months of selling property. 54 EC bonds are one of the most popular measures to save tax accrued on long-term capital gains. However, it is important that you invest in these bonds within the stipulated time frame to avail the tax benefits. These capital gain bonds are issued by selected entities such as the Rural Electricity Corporation (REC) or the National Highways Authority of India (NHAI). The maturity period for these bonds is fixed at three years, and they are non-transferable.