Long-term capital gains (LTCG) are taxable under the Income Tax Act. However, you can get exemption on LTCG tax under Sections 54, 54F, and 54EC. While Sections 54 and 54F pertain to purchasing a house with the capital gains made, Section 54EC allows you to claim exemption from LTCG tax on the purchase of notified government bonds.
Capital Gain Bonds are being issued as “Long Term Specified assets” within the meaning of Sub Section 54EC of Income Tax Act 1961. Those desirous of availing exemption from the capital gain tax under section 54EC may invest in these bonds.
Capital gain arising from the transfer of the Long-Term capital assets can be invested in these bonds within a period of six months from the date of transfer of the asset for getting exemption from the capital gain tax under section 54EC. The maximum limit for investing in these bonds is Rs.50 Lacs and minimum Rupees Ten Thousand.
Corporates / Institutions Issuing Capital Gain Bonds (Sec 54EC)
- Power Finance Corporation Limited (PFC)
- Indian Railway Finance Corporation Limited (IRFC)
- Rural Electrification Corporation Limited (REC)
- National Highway Authority of India Limited (NHAI)
Terms & Issue Highlights
| Issue Highlights | Rural Electrification Corporation of India (REC) | National Highway Authority of India Limited (NHAI) | Power Finance Corporation Limited (PFC) | Indian Railway Finance Corporation Limited (IRFC) |
| Coupon / Interest Rate Payable Annually | 5% | 5% | 5% | 5% |
| Rating | “AAA Stable” by CRISIL / “CARE AAA” by CARE “AAA(ind)” by Fitch Ratings | “AAA/Stable” by CRISIL, “AAA/ind” by Fitch Ratings, and "AAA" by CARE | AAA/Stable by CRISIL, ‘AAA’ by ICRA, &'AAA' by CARE | “AAA by CRISIL CARE AND ICRA” |
| Face Value of the Bond | Rs.10,000 | Rs.10,000 | Rs.10,000 | Rs.10,000 |
| Minimum Bonds allowed for Subscription | 2 Bonds worth Rs.20,000/- | 1 Bond worth Rs.10,000/- | 2 Bonds worth Rs.20,000/- | 2 Bonds worth Rs.20,000/- |
| Tenure of the Bonds | 5 Years from the Date of Allotment | 5 Years from the Date of Allotment | 5 Years from the Date of Allotment | 5 Years from the Date of Allotment |
Lock-In Period | 5 Years | 5 Years | 5 Years | 5 Years |
| Interest Payment Date | June 30 Every Year till Maturity | March 31 Every Year till Maturity | July 31 Every Year till Maturity | October 15 Every Year till Maturity |
| Issuance Mode | Both Physical & Demat | Both Physical & Demat | Both Physical & Demat | Both Physical & Demat |
| Eligible Investor | Both Individual & HUF Member | Both Individual & HUF Member | Both Individual & HUF Member | Both Individual & HUF Member |
Key Features of the Capital Gain Bonds (54 EC Bonds)
- Issuer – Issued by the PSU Corporate (Navratan Companies)
- Safe – Highest Credit Rating assigned to the Bonds “AAA Stable By both CRISIL & CARE” to all the four issues
- Investment Amount – Minimum Investment in Capital Gain Bonds is Rs.10,000 & Maximum is Rs.50 Lacs in a financial year.
- Interest Rate – All four issues bear a coupon of 5% which is paid annually. Interest earned on these bonds is taxable and no TDS is deducted on interest on these bonds. Wealth Tax is exempted.
- Lock-in Period – These bonds having a maturity of 5 years and not saleable & non – transferable.
Benefits of Investing in Capital Gain Bonds
- Save Tax – Under Sec 54 EC of Income Tax Act 1961, an investor can save tax while investing in these bonds.
- Security – Capital Gain Bonds are issued by the Navratan Companies which are owned and backed by the government, hence risk factor associated with buying Capital Gain Bonds is mitigated.
- Earn & Save – Interest received on these bonds can be reinvested in other asset classes to get a better return. Capital Invested can be “saved” for the future.
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