Capital Gains Bonds (Form 54EC)

 Capital Gains Bonds (Form 54EC)

Under section 54EC of Income tax act 1961, capital gains bonds offer tax exemption on long term capital gains tax. 

These bonds are specifically meant for the investors who have earned long term capital gains & would like to save capital gains tax on them. However, these bonds do not allow any tax exemption on short term capital gains tax.

Companies that issue these bonds enjoy high credit rating as they are mostly government backed entities& they come with a minimum lock-in period of 3 years. Interest earned on these bonds are not tax free & are taxed at marginal rate of income tax as per the tax slab you fall into, however there is no TDS deducted.

Who should buy Section 54EC Bonds?

• These bonds are specifically meant for people who have made some long term capital gains, and would like to save capital gain taxes on this amount.
• Those desirous of availing exemption from capital gains tax under Section 54 EC may invest in these bonds.

What are the Provisions related to Capital Gain Bonds

 

Capital gains arising from transfer of Long-term capital assets can be invested in these bonds within a period of six months from the date of transfer of the asset for getting exemption from the capital gains tax.

 

Which bonds are eligible under the Section 54 EC?

 Key features of Section 54 EC bonds are:

• Highest credit rating of AAA by CRISIL, CARE and FITCH.
• Interest is taxable although no TDS is deducted
• Lock-in of around 3 years and non- transferable
• Minimum amount of investment Rs 10,000 and multiples

What is the investment limit for the Section 54 EC- Capital Gain Bonds?

You can invest a minimum of Rs. 10,000 and a maximum of Rs. 50 lakh. The face value is Rs. 10,000 per bond and you can buy up to 500 bonds.

What is the rate of interest and block period for these bonds?

The interest rate on these bonds is 6% per annum.

The block period for the investment of these two companies is 3 years.

Tax Treatment 

No tax is deductible at source on the interest they pay. But the interest earned on these bonds is taxable. You will need to pay tax on the interest income.

Whether loan is possible against these bonds?

No, you cannot take a loan on these bonds.

In which form one can buy these bonds

 These bonds can be subscribed in Physical and Demat form.

 Where can I buy these bonds?

A lot of bank branches sell these bonds, so you can ask at your local bank.