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Capital Gains Bonds

Under Section 54 EC of Income Tax, 1961 an investor need not pay any tax on any long-term capital gains arising on sale of any asset, if the amounts of capital gains are invested in certain specified bonds. Rural Electrification Corporation Limited (REC) & National Highways Authority of India (NHAI) are permitted to issue capital gains bonds under Section 54 EC.

Some key features of Section 54 EC bonds are:

  • AAA rated
  • Interest is taxable although no TDS is deducted
  • Lock-in of 3 years and non- transferable
  • Minimum investment-1 Bond amounting to Rs. 10,000/- and maximum investment-500 Bonds amounting to Rs. 50 lakhs in a financial year
  • Rate of Interest 6.00% p.a. payable annually
  • Bonds can be held in Demat /Physical Form
  • Facility of Payment of Interest and Redemption through NECS
  • The Bonds will automatically redeem after expiry of three years