If you have sold a house property, land or building recently, you can avail of tax exemption on the resultant profit or capital gains by investing in 54EC bonds, which are also known as capital gains exemption bonds. The exemption is available under Section 54EC of the Income-tax Act. The investment has to be made within six months of selling the asset.
These bonds are generally floated by public sector companies, including Rural Electrification Corp. Ltd (REC), Power Finance Corp. Ltd (PFC), National Highways Authority of India (NHAI) and Indian Railways Finance Corp., from time to time.
Features
You can invest up to ₹50 lakh per financial year in 54EC bonds. The minimum investment limit is generally in the range of ₹10,000 to ₹20,000.
These bonds come with a lock-in period of five years. “As these bonds provide a tax benefit, they come with a lock-in and are non-transferable,” said Vikram Dalal, managing director, Synergee Capital services Ltd.
Return: Currently, the rate of interest on these bonds is 5% per annum. It was reduced from 5.75% per annum this July 2020. The interest is paid annually and is fully taxable. The interest is added to the income and taxed as per the slab of the person. There is no TDS (tax deducted at source) on these bonds.
Risk: 54EC bonds are AAA-rated bonds and are backed by the government. Hence, the risk of interest and capital payment is protected.
Investing process
Download the form from the respective company’s website and submit it at the registrar’s office along with KYC documents and a cancelled cheque leaf. Deposit the amount through a demand draft, account payee cheque, or transfer online through RTGS or NEFT. Mention the details of the payment made in the application form.
You can also invest online through a broker or directly through the company’s website. “Brokers generally charge 10 paise per ₹100 invested. Further, after March, investors are allowed to fill in the soft copy on the website and pay online,” said Dalal.
The website will also show the investment status.
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