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Investors who are looking to reinvest the proceeds or gains realized in buying a new property or land within one year of the sale should not invest in 54EC bonds. These bonds have a lock-in period of 5 years from the date you invest. India’s REC RECLTD has hired bankers to raise up to $500 million through its debut issuance of yen-denominated green bonds by Jan. 15, the company’s director of finance told Reuters on Thursday.

  • The company has hired DBS Bank, Mizuho, MUFG and SMBC Nikko as joint lead managers for the proposed issue.
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  • Investors have to keep track of their investments and their maturity dates to ensure that they receive the full benefits of their assets.
  • Based on your financial objectives, choose the amount of money you wish to invest.

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. This guide will cover all that you need to know about capital gains bonds under section 54EC of the Income Tax Act. You can purchase these bonds after receiving a capital gain from selling a property.

As shown in example, assessee has tried to take double benefit of section 54EC by investing the amount in two different financial years but within six month after the date of transfer. Withholding tax is a form of tax that applies to the interest earned by foreign investors who invest in rupee-denominated Indian debt instruments. However, they will not be eligible for the exemption offered in section 54EC. 54EC Bonds are AAA Rated secure bonds and only issued by government backed PSUs. No, exemption under section 54EC can be claimed only in respect of long term capital gain.

Capital Gains Bonds for Tax Exemption under Section 54EC

One must fulfill certain requirements in order to invest in bonds under Section 54 EC of the Income Tax Act; if the requirements are not met, the investor may not be permitted to purchase a capital gain bond. 54EC bonds have a five-year lock-in period from the date of acquisition and are non-transferable. Additionally, the capital gain exemption will be lost if the assessee does not comply.

However, the interest gained is taxable and must be mentioned during the tax return filing. 54EC are capital gain bonds, that is used to receive the capital gain tax exemption. If you have received capital gain from selling a property, you can invest in these bonds to avoid paying capital gain tax.

  • Individuals who have sold their property and received capital gains.
  • As the name goes by, these bonds are issued under Section 54EC of the Income Tax Act 1961.
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  • Selling your capital assets for a substantial profit may be a joyous occasion, but you must also pay capital gains taxes.

In November, REC revised its total borrowing limit for the current financial year to up to 1.5 trillion rupees from 1.2 trillion rupees earlier due to the increased need for funding as disbursements picked up. The company has hired DBS Bank, Mizuho, MUFG and SMBC Nikko as joint lead managers for the proposed issue. The state-owned infrastructure financier will issue five-year and 10-year bonds to raise $300 million-$500 million to fund green infrastructure projects, said Ajoy Choudhury. The amount of maximum exemption is 50 lacs per PAN and per financial year.

Tax Benefits of Capital Gain bonds

Investors can benefit from tax exemption on capital gains under Section 54EC of the Income Tax Act 1961 by investing in 54EC capital gain bonds. These bonds offer savings on long-term capital gains from selling property if the investment is made within six months of the sale. The maximum investment limit for these bonds is Rs. 50,00,000 per financial year. Starting from April 1st, 2023, The interest rate on these bonds has increased to 5.25% per annum . It’s important to remember that the interest earned on these bonds is subject to income tax. These bonds are financial instruments that are issued by certain government entities or organizations for the purpose of providing a tax-saving investment option to investors.

Receive Confirmation

You can consider investing under section 54F or 54 to invest more than Rs. 50,00,000. If you make a physical investment, you will get a bond certificate from the issuer. You will need to present the certificate when it comes time for maturity, so handle it with care. Investors may purchase 54 EC bonds in physical or demat form, depending on their preference. With an AAA rating, 54 EC bonds are reliable and safe since they are issued by government entities.

Tax benefits

Additionally, the lock-in period of 5 years makes these bonds a good option for long-term investment. If someone’s money was added to these bonds’ accounts after September 3, 2022, NHAI will give that money back. If investors were hoping to use these bonds to avoid paying some taxes on their profits, they’ll need to work with the banks or financial companies they dealt with, as NHAI won’t be responsible for that part. 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. Selling capital assets and making a profit will result in taxation on those profits as capital gains.

Section 54EC exemption is available only towards the capital gain arisen on account of transfer of long term capital asset (being land or building or both). The bonds can be credited in their DEMAT account or can be purchased in physical form. Of the total borrowing, 40% is through domestic corporate bonds, 30% through external commercial borrowings, 20% via bank term loans and the remaining via 54EC capital gains bonds. You can apply through your broker if you are interested in investing in 54EC bonds. If you want to purchase, you must do it within 6 months of transferring the asset.

How investment in Capital Gain Bonds Works?

Yes, NRIs are eligible to invest in Capital Gain Bonds and claim tax exemption if they have realized long-term capital gains from the sale of land/property. It’s also worth noting that these bonds are issued by specific government-approved entities, and investors must ensure that they are investing in bonds issued by one of these entities to be eligible for tax benefits. Investors should check the eligibility criteria and other requirements before investing in 54EC Bonds. It’s important to note that the investment in these bonds must be made within 6 months from the date of the sale of the asset generating capital gains.

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