Capital Gain Bonds: A Smart Route to Save on Taxes
Capital Gain Bonds, also known as 54EC Bonds, are a type of financial instrument issued under Section 54EC of the Income Tax Act, 1961. These bonds offer a tax-saving option for individuals who have earned long-term capital gains from the sale of their real estate property, such as land or buildings. By reinvesting their profits in bonds within 6 months of the sale of their property, investors can save on capital gains tax.
Capital Gain Bonds help an investor to avoid huge capital gains taxes on the sale of real estate. These bonds allow an investment of up to Rs 50, 00,000 every financial year, providing a secure and stable investment option. It is also important to note that the principal amount invested will help in tax savings, but the interest earned on these bonds is taxable.
Understanding Capital Gain Bonds
• (i) Please note that it is very important to be aware of the lock-in period when you invest in 54EC Capital Gain Bonds. This period has a specific duration of 5 years, and during this, you cannot withdraw your invested funds. You can get back your original investment amount after the lock-in period ends without any fresh tax implications.
• (ii) Any individual or Hindu Undivided Family (HUF), who has earned Long-Term Capital Gains from the sale of property or land, is qualified to buy Capital Gain Bonds. Generally speaking, Long-Term Capital Gains are gains from assets you own for longer than a specific time frame, such as 12 months.
What Are Capital Gain Bonds?
Capital Gain Bonds, also called 54EC Bonds, are special debt instruments issued by government-backed entities such as:
• National Highways Authority of India (NHAI)
• Rural Electrification Corporation Limited (REC)
• Power Finance Corporation Limited (PFC)
• Indian Railway Finance Corporation Limited (IRFC)
These bonds are designed to provide tax exemption on long-term capital gains arising from the sale of land, building, or both. By investing the eligible gains in these bonds, investors can av