Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. 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 was claimed, shall be taxable as long-term capital gain in the year of conversion. Section 54EC provides an exemption to the taxpayers from the tax liability on account of long-term capital gains. Such exemption is available on the capital gains generated out of the sale of any immovable property held for a period of 2 years or more.

  • It’s important to note that the investment in these bonds must be made within 6 months from the date of the sale of the asset generating capital gains.
  • 54EC bonds are issued by government backed infrastructure companies, which reduces the risk involved in purchasing such bonds.
  • This means that once an individual invests in these bonds, he must sustain at least five years.
  • Capital gains bonds are a great option for anyone looking to save on taxes paid.

NHAI already has a lot of debt, around ₹3.44 trillion as of January 2022. REC has launched Series XVI of Capital Gain Bonds u/s 54EC of Income Tax Act, 1961 on 1st April 2022. These Bond have tenor of 5 years and the Rate of Interest for    the bonds is 5.00 p.a. The issue of Series XVI REC 54EC Bonds will remain open till 31st March 2023 or earlier at discretion of REC. You can apply for the 54 EC bonds offline (Physical) and online.

Points to Note for Availing LTCG Exemption

It’s important to note that the investment in these bonds must be made within 6 months from the date of the sale of the asset generating capital gains. 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. It is important to note that early redemption or sale of bonds before the end of the lock-in period may result in the loss of tax benefits accruing to gains under section 54EC.

  • If you are subscribing to an IPO, there is no need to issue a cheque.
  • One of the important heads of income under which the income is taxable is the capital gains.
  • Section 54EC is considered a very important section in the Income Tax Act since it provides individuals relief from tax on long term capital gains at an impressive rate of 20%.
  • These capital gains come under either short-term capital gains or long-term capital gains, depending on the holding period of such assets.

It is advisable to consult a tax professional or financial advisor for proper guidance to understand the specific requirements and implications of investing in capital gains securities. 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. Individuals are typically allowed to invest in these bonds within a specific period, usually six months from the date of the asset transfer. In Union Budget 2017, the Finance Minister talked about introducing newer bonds to boost the market. However, in the 2018 Budget, the minister proposed an increase in the lock-in period for 54EC Bonds to raise the demand for this type of financial instrument.

What are the eligible investments under 54EC?

Download Form 60/Formats for request for correction / change of Bonds details or Address etc. Insurance is not a Exchange traded product and the Member is just acting as distributor. All disputes related to the distribution activity of insurance will not have access to Exchange investor redressal forum or Arbitration mechanism. The securities are quoted as an example and not as a recommendation.

Tax deduction is available under section 54EC of the Income Tax Act. 54EC bonds do not allow any tax exemption on short-term capital gains tax. The maximum limit for investing in 54EC bonds is Rs. 50,00,000. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and IRFC (Indian Railways Finance Corporation Limited). Investing in 54EC Bonds can be a good option for investors who are looking for tax benefits and a guaranteed return.

How to calculate the tax exemption by investment in tax saving bonds

Individuals should, therefore, carefully consider investment timelines and financial objectives before investing in capital gain bonds. Section 54EC is an important section in the Income Tax Act as it provides relief from the tax on long-term capital gains at the rate of 20%. This helps them reduce their tax liability cash receipt and also earn interest income on the bonds at the rate of 5% per annum. The Income Tax Act provides relief in the form of exemption on the capital gains generated from the sale of such long-term capital assets. This exemption is condition based and helps in reducing the tax liability of the assessee.

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. If someone’s money was added to these bonds’ accounts after September 3, 2022, NHAI will give that money back. If investors were hoping to use these bonds to avoid paying some taxes on their profits, they’ll need to work with the banks or financial companies they dealt with, as NHAI won’t be responsible for that part. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

When is this tax exemption applicable?

But this planning is nullified by the Second Proviso u/s 54EC. Kindly, read the Advisory Guidelines for investors as prescribed by the exchange with reference to their circular dated 27th August, 2021 regarding investor awareness and safeguarding client’s assets. The maximum investment amount related to these bonds is ₹ 50 lakh in every financial year. Moreover, in terms of the number, you can purchase a maximum of 500 bonds. Apart from reducing your gross tax liability, these bonds also provide you with a regular income in the form of interest.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law. As the sale price of each property transaction is huge, the tax applicable also turns out to be huge. And therefore, proper care needs to be exercised while computing the Capital Gains and then using the Exemptions to reduce the Tax Liability.

Section 54EC exemption is available only towards the capital gain arisen on account of transfer of long term capital asset (being land or building or both). Whenever you indulge in the sale of any asset, you will receive capital gains. These capital gains come under either short-term capital gains or long-term capital gains, depending on the holding period of such assets. Individuals as well as members of HUF can make investments in 54EC bonds. You should invest in 54EC bonds within 6 months of transferring capital asset.

Generally, 54EC bonds are issued by infrastructure companies that have support from the government. Thus, the risk quotient is very low in purchasing these bonds. However, these bonds cannot be sold since they are not listed on the stock exchange. Investors can enjoy tax exemptions under section 54EC of the Income Tax by purchasing these bonds.

Provided that the new Residential House Property purchased or constructed is not transferred within a period of 3 years from the date of acquisition. The capital gain arising from this transfer will always be a short term capital gain. You can receive tax exemption under IT section 54EC by investing in these bonds. However, the interest earned is taxable as per the income tax slab. You will need to declare capital gain from 54EC bonds under your return filing since no tax is deducted at the source. Investing in 54EC Bonds can also help diversify an investor’s portfolio.

In case the whole sale consideration is not invested and only a part of the sale consideration is invested, exemption shall be allowed proportionately i.e. You may also refer this article which talks in detail about the Capital Gains Bonds, their interest rates and other applicable provisions – Capital Gains Bonds of NHAI & REC. Capital Gains Exemption can be claimed under the Income Tax Act by reinvesting the amount in either purchasing/ constructing a Residential House or by reinvesting the amount in Capital Gain Bonds. Capital bonds issued by the REC, NHAI, PFC, and IRFC feature an AAA rating. As per relevant provisions of the Income Tax Act 1961, the Rural Electrification Corporation, Power Finance Corporation, National Highway Authority of India and Indian Railway Finance Corporation can issue these bonds. We hope that you are well versed with the meaning of 54EC bonds; let’s shift our focus to other dimensions.