Understanding 54EC Bonds- What is Capital Gains Tax

54ec bonds

A long-term capital gain is any revenue that you get from the sale of an asset. According to the Income Tax Act, you are liable to pay tax for such gains. However, you can reduce the liability of these taxes.Invest in section what are accrued expenses, also commonly known as capital gain bonds, to avail tax deductions in the future. The bonds are issued as per the provisions of the section 54EC of the IT Act. They are bonds offered by Rural Electrification Corporation Ltd (REC), Power Finance Corporation Limited (PFCL) and National Highways Authority of India (NHAI), among others.

C Bonds – Eligibility and Exemption

  1. Any financial instrument offers excellent financial leverage to an investor as their existing capital can be used to generate returns for them instead of remaining unused.
  2. You are not allowed to prematurely withdraw from these bonds before their expiry date.
  3. 54EC are capital gain bonds, that is used to receive the capital gain tax exemption.
  4. The lock-in tenure as well the interest rate on these bonds is determined beforehand.

Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone. If IREDA and HUDCO are included under Section 54EC, it would make https://www.wave-accounting.net/ their bonds more attractive to investors due to the tax exemption on capital gains. This could lower the borrowing costs for these firms, enabling them to fund renewable energy projects and affordable housing initiatives more efficiently.

Understanding Section 54EC: Tax Benefits and Investment Options

Investors must consider these factors carefully, examining their investment objectives, risk appetite, and tax implications before making an investment decision. Speaking with financial advisors or professionals can provide more guidance tailored to individual circumstances. Yes, investors have the flexibility to hold 54EC Bonds in Demat accounts or in physical form based on their preference. With this, EU debt will receive the same lower haircuts like debt instruments issued by central governments in the ECB’s collateralised credit operations.

54ec bonds

Concept of all-time high price, its limited relevance

Capital gains tax is applied only to profits earned from the capital asset sale, but not on inheritance or gift, regardless of the ownership transfer. Yes, NRIs can claim the exemption the exemption under section 54EC of the Income Tax Act. However, the land or building that has been sold to result in a capital gain should be located in India. Investing in 54EC bonds requires fully understanding the terms, benefits, and limitations. Arming yourself with the exhaustive handbook places you in an informed position regarding the suitability of 54EC bonds in your investment portfolio. These bonds currently offer an interest rate of 5.25% per annum, compared to over 8% in the bond market for public sector undertaking (PSU) bonds.

Now, as the capital gain of Rs. 50,00,000 is exempt from tax, the post-tax amount for it will remain unchanged. In the case of Ms Z, payable tax amount is Rs. 13,12,500 bringing down her taxable income to Rs. 36,87,500. Kindly, read the Advisory Guidelines for investors as prescribed by the exchange with reference to their circular dated 27th August, 2021 regarding investor awareness and safeguarding client’s assets. The maximum investment amount related to these bonds is ₹ 50 lakh in every financial year. Moreover, in terms of the number, you can purchase a maximum of 500 bonds.

54ec bonds

How to Invest in Bond Public Issues in India

No, you can’t redeem the investment before the maturity of bonds i.e. before 5 years from the date of investment. If you redeem bonds before their maturity, the exemption granted under Section 54EC will not be granted and you will have to pay LTCG tax on the original capital gains amount. LTCG on property sales are taxed at 20 per cent, leading to significant tax liabilities. However, the exemption under Section 54EC can offer considerable tax relief.

The income earned from the long-term capital gains will be taxable from the year you obtained the loan. You can receive tax exemption under IT section 54EC by investing in these bonds. However, the interest earned is taxable as per the income tax slab.

These bonds continue to be tax exempted, and no tax is deducted at the source. However, the interest gained is taxable and must be mentioned during the tax return filing. Currently, bonds of state-run companies like Rural Electrification Corp. Ltd (REC) and Power Finance Corp. (PFC) qualify for these exemptions. Section 54EC bonds, also known as Capital gain bonds are fixed income instruments which provide capital gains tax exemption under section 54EC to the investors. When a taxpayer sells long-term immovable property (land or building or both), they have the option to avail capital gain exemption under Section 54EC by investing in certain bonds.

Investors need to make an investment in 54EC Bonds within 6 months from the date of the sale of their asset generating capital gains. Bonds are one such fixed-income financial instrument which can also be considered as interest-bearing debenture certificates. These bonds are open to the financial market as well individuals dealing in the stock market. You are not allowed to prematurely withdraw from these bonds before their expiry date.

These bonds are suitable for tax-saving and conservative investors seeking safety. Are you looking to sell your property but are worried about paying tax for gains? We tell you how to save on taxes on any long-term capital gain.

You can purchase these bonds after receiving a capital gain from selling a property. These bonds have five years lock-in period and interest payable annually at the rate of 5.75 percent. Selling your capital assets for a generous amount of profit is surely a moment of https://www.quickbooks-payroll.org/contribution-margin/ joy, but it also comes with capital gains taxes. However, there are various ways to avoid this tax or minimize your capital gains tax liability. One such way is to invest your capital gains in capital gains bonds specified under section 54EC of the Income Tax Act.

To avail the tax exemption, you need to invest in these bonds within 6 months of the date of the sale of the property. Such investment amount can be redeemed by the investor only after 5 years. This shift in the period has increased the revenue from interest on these capital bonds in 2019.

As per the Finance Act (no.2) 2014 amendment, you can’t invest more than Rs. 50 lakh in the capital bonds under Section 54EC. You can consider investing under section 54F or 54 to invest more than Rs. 50,00,000. Please note that by submitting the above mentioned details, you are authorizing us to Call/SMS you even though you may be registered under DND.

Z’s earning, on the other hand, would be calculated on 10% which would make her total income on maturity Rs. 55,31,250. Whenever you indulge in the sale of any asset, you will receive capital gains. These capital gains come under either short-term capital gains or long-term capital gains, depending on the holding period of such assets. Under Section 54EC, investments in specified bonds must be made within six months of the sale of immovable property, and the invested amount cannot be redeemed before five years. Equity returns are non-defined and the break-even rate calculated for this asset class to outperform 54EC bonds is 8.24 per cent net of tax. It is difficult for bonds as it will be possible only for a bond with inferior credit quality against a AAA rated PSU one.