54 EC Capital Gain Bonds Interest rate reduce to 5% from 1 August 2020
What are 54EC Bonds
54EC bonds, or capital gains bonds, are one of the best way to save long-term capital gain tax. 54EC bonds are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains. Tax deduction is available under section 54EC of the Income Tax Act.
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.
54EC bonds do not allow any tax exemption on short-term capital gains tax. Invest in 54EC bonds to get benefits of tax deduction. 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 NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited).
Key Features of 54EC Bonds
54EC bonds are popular investment instruments as investing in 54EC bonds allows investors to claim tax deductions on long-term capital gains. 54EC bonds also offer other features.
i. Safe and Secure: 54EC bonds are AAA rated. The 54EC bonds are not only AAA rated, but are backed by the government also, hence the risk factor associated with buying 54EC bonds is mitigated.
ii.TDS and Taxability of Interest: Interest on 54EC bonds is taxable. No TDS is deducted on interest from 54EC bonds and wealth tax is exempted.
iii. Tenure: 54EC bonds come with a lock-in period of 5 years (effective from April 2018) and are non-transferable.
iv. Investment amount: Minimum investment in 54EC bonds is 1 bond amounting to Rs. 10,000 and the maximum investment in 54EC bonds is 500 bonds amounting to Rs 50 lakhs in a financial year.
v. Interest Rate: 54EC bonds offer 5.75% rate of interest payable annually. From 1 August 2020 the rate of interest is reduce to 5.00%
Key Benefits of 54EC Bonds
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. Take a look at the benefits of investing in 54EC bonds
i. Save Tax
Long-term capital gains from investments in 54EC bonds or sale of 54EC bonds can be reinvested in order to save tax.
54EC bonds are backed by the government; hence the risk factor associated with buying 54EC bonds is mitigated.
iii. Earn & Save
Investing in 54EC bonds allows you to save tax while earning interest income from the 54EC bonds.
iv. User Preference
54EC Bonds can be held in either demat or physical form.
Bonds offered under sec 54EC
With effect from FY 2018-19, benefit of investing in 54EC bonds would be available on sale of land or building (residential or commercial). The capital gains 54EC bonds eligible for tax deductions can be issued only by REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and NHAI (National Highways Authority of India). Avail the opportunity to invest in 54EC bonds to gain tax deductions.
FAQs ON 54 EC Capital Gain Bonds
1. Why to invest in 54 EC bonds?
Answer: The gains that arise on the sale of a Long Term Capital Gain Asset are known as Long Term Capital Gains and Capital Gains Tax is levied on such gains. However, such tax can be saved if this amount is invested in capital gain bonds specified under section 54 EC.
2. What is the mode of application?
Answer: You can apply for the 54 EC bonds offline with physical forms and even online you can do RTGS
3. Which bonds are eligible under the Section 54 EC?
Answer: REC (Rural Electrification Corporation), NHAI (National Highways Authority of India), IRFC (Indian Railway Finance Corporation) & PFC (Power Finance Corporation Ltd) are the bonds eligible under Section 54 EC.
4. What are the modes of payment?
Answer: The payment can be done through cheque, DD or RTGS