Invest in Section 54EC Bonds to save capital gains tax

by Manshu on March 7, 2011

in Fixed Deposits,Tax

There was a question on the forum on how you can save capital gains that arise from selling property, and Loney responded to that by the suggesting the Section 54EC Capital Gains exemption bonds.

I have not written about them earlier, so I thought I’d do a post on these bonds now. So, here is a post with some details on 54EC bonds.

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.

Only long term capital gains are eligible for these bonds though, and short term gains are not covered under section 54EC.

54EC Bonds FAQ

54EC Bonds FAQ

What is the upper limit for investing in these bonds?

The maximum gains are capped at Rs. 50 lacs in a year, so you can invest in a maximum of Rs. 50 lacs worth of 54EC bonds in a year to avail of the tax benefit.

Please note that the section is not cut and dry, and there are conditions on how much money will be exempted based on whether the profit made is more than the cost itself, and I will try to detail out the sections in a later post, or if you have a link that does a good job of explaining this then please leave a comment and I’ll link to it.

Who is issuing 54EC bonds?

REC (Rural Electrification Corporation) is issuing these bonds, and from the current information present on their website I see that they will be issuing these bonds till March 31st 2011.

Here are their contact details:

(Application Form can be downloaded from the website : http://rec.rcmcdelhi.com)

a Our Registrar to the Issue :
RCMC Share Registry (P) Ltd.
B-106, Sector-2, NOIDA
U.P. -201301
Ph.: 0120-4015880-81
Fax: 0120-2444346
Email:bonds@rcmcdelhi.com
Website : http://rec.rcmcdelhi.com

a For Investor Grievances
& Non-Priority  Sector Bonds
Email : bonds@rcmcdelhi.com

a For any assistance or clarification please contact:
Investor’s Relation Cell
Core-4, SCOPE Complex
7, Lodhi Road
New Delhi – 110003
Email: investorcell@recl.nic.in
Phone : 011-24361320, 011-2436 5161 extension 527
Tollfree No. : 1800-200-1333


NHAI is also issuing 54EC bonds, and their details can be found on this page.

What is the interest rate on 54EC bonds?

Currently, both REC and NHAI are offering 6% interest on their bonds.

What is the lock in period of these bonds?

The lock in period of these bonds is 3 years, so you can’t sell them before the 3 years.

Is the interest on these bonds taxable?

Yes, the interest from these bonds is fully taxable, and there is no exemption on that. TDS is however not charged on them.

Who can invest in these bonds?

Resident individuals, HUFs, partnerships, companies, banks, financial institutions, regional rural banks, co-operative banks, insurance companies, provident funds, super annuation funds, gratuity funds, mutual funds, FIIs, trusts authorized to invest bonds, NRIs investing out of NRO account on non repatriable basis can invest in these bonds.

So, everyone except your pomeranian can invest in these bonds.

Where can I buy these bonds?

A lot of bank branches sell these bonds, so you can ask at your local bank. Unfortunately, I don’t have a list of branches with me, so you will have to rely on other sources, or check with your local branch.

Do I need a demat account for them?

No, you don’t necessarily need a demat account for them because the bonds are issued in paper as well as demat form.

I’ve tried to cover whatever points I could think of about these bonds, but I’m sure there are several aspects that I missed, so feel free to ask any questions in the comments section, and of course any other observations are also welcome.

 

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{ 101 comments… read them below or add one }

rajkhosla September 26, 2012 at 10:45 pm

If I put money into the rural bonds to avoid capital gains and withdraw it immediately as my husband’s name was not included . Can I withdraw it and put it again. You get a 6 month window and that window has not expired

Reply

Mohan Srinivasan October 31, 2012 at 9:47 am

My mother-in-law is the 54EC Bond holder and unfortunately expired on 8th September 2012. My wife is the registered nominee for the above bond which is due for maturity by 31-3-2013. Pl advice me thro, mail what are all the necessary action to be taken at this juncture. Expecting your reply mail at the earliest. Thanking you.

Reply

pratap barua February 1, 2013 at 7:08 pm

My sister sold a residential independent house for 1.50 crore in novemebr 2012. She has alreday deposited 50 lakh in REC bonds to save capital gain tax. Can she deposit another 50 lakh in April 2013 as it will be within 6 months of the sale? Kindly advise.
Our accountant says that it is a risk as it may not be allowed. But I see in the internet that some people have said that it can be done. What is the actual position.

Reply

Nitin August 16, 2013 at 8:33 am

My father wanted to purchase capital gain bonds. But unfortunately he died. All his finance transactions and accounts are joint with my mother.Please advise if the investment now has to be done entirely in my mothers name for the full amount desired by my father or otherwise. Thanks in advance for your valuable advise.

Reply

Shiv Kukreja August 18, 2013 at 7:50 pm

Hi Nitin,
Yes, in this case, your mother would be required to do the necessary investments.

Reply

Nitin August 19, 2013 at 7:59 am

Thanks Mr.Shiv for your advise.

Reply

NARESH KUMAR AGGARWAL October 14, 2013 at 11:48 am

I have capital gain & would like to save the Tax through these bonds my query is that since the property sold is in my name but I have to purchase these Jointly with my sons, be the first holder me. Is ther any problem on the point of saving Tax u/s 54EC.

Please carify

Naresh Kr Aggarwal

Reply

NARESH KUMAR AGGARWAL October 14, 2013 at 11:58 am

I have to avail capital gain bonds taxs . My query is that since the property sold is in my individual name can I invest along with my sons in Tax savings bonds . I will be the first applicant. Can I save the Tax u/s 54EC.

Naresh Kr Aggarwal

Reply

devang h shah April 16, 2014 at 1:00 pm

i have invested rs. 8 lacs in rec bond on 07.04.2014 , the amount received on 06.04.2017 i.e. maturity of the bond is taxable or not?

Reply

devang h shah April 16, 2014 at 1:03 pm

i have invested rs. 8 lacs ( long term gain amount ) in rec bond on 2014 , the amount received on 2017 i.e. maturity of the bond is taxable or not?

Reply

Shiv Kukreja April 19, 2014 at 1:21 pm

Hi Devang,
Your investment amount will not be taxed on maturity, only the interest you are going to get every year will be taxed.

Reply

rakesh kumar jain April 19, 2014 at 9:58 am

I understand that the maturity amount of 54EC bonds is not taxable but
the annual interest earned on these bonds is taxable?

Reply

Shiv Kukreja April 19, 2014 at 1:21 pm

Yes, that’s right.

Reply

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