Capital Gains Bond – SEC 54 EC Features

Author: Addison Perry Updated: 08-05-2024 12:20 PM

Introduction to Capital Gains Bonds

Capital Gains Bonds are also called Sec 54 EC Bonds and are a type investment instrument that is authorized by the Income Tax Act of 1961. These bonds allow individuals to reduce the long-term capital gain taxes they incur from selling assets or property. You can delay the payment of capital gain tax by investing in these bonds.

Section 54EC

According to section 54EC, Income Tax Act 1961, long-term capital gains from the transfer of capital assets are exempt from taxation if they -

The asset is a Long Term Capital Asset. This includes land, buildings or both. The asset is long-term when the taxpayer holds it for at least 24 months before the sale.
All capital gains must be invested in Sec 54 EC bonds within six months from the date of transfer.
The capital gains exemption will be removed if the bond cannot be converted into cash or a loan secured by it is not taken within five years of the date of purchase.
Capital gains are only exempted if the amount invested is less than capital gains.
The total amount of investment cannot exceed INR50 lakhs in the current and subsequent financial years.

Bonds that are eligible for an exemption under Section 54EC of Income Tax Act

Rural Electrification Corporation Limited (REC bonds)
Indian Railway Finance Corporation Limited (IRFC Bonds)

Who can invest?

Any taxpayer can claim the exemption under Section 54EC, including

Residents and Non-Resident Individuals
Hindu Undivided Family

Why should you invest in Capital Gains Bonds?

Capital Gains Deferral By purchasing Capital Gains Bonds you can delay the payment of capital gain tax. This helps to manage your cash flow better.
Stable Returns These bonds offer a stable return due to the fixed interest rates they offer. However, when combined with capital gains tax savings, these returns are comparable with other market investments.
Low-Risk - Bonds for Capital Gains are a relatively safe investment because they're issued by government agencies and rated "AAA" by credit rating companies.
Long Term Investment OptionIf your investment horizon is long and you want to minimize tax liabilities, Capital Gains Bonds are a great option. Tax benefits are offered while they provide a safe investment.

Capital Gains Bonds - Highlights

How do I invest in 54EC bonds?

These bonds aren't listed on the stock exchange. You can purchase them directly from the issuer, either in demat or physical form. Follow these simple steps to apply for our Capital Gains Bonds -
To obtain an application form log in to pms company.
Complete all the required details.
Include all required documents - identity proof, proof of address, PAN card information, and a canceled check.
You can submit the application form, along with supporting documents..
After verification and approval you will receive your bonds either in demat form or in a physical form.

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