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. 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.
• Safe and Secure: 54EC bonds are AAA rated.
• Interest: Interest on 54EC bonds is taxable. No TDS is deducted on interest from 54EC bonds.
• Tenure: 54EC bonds come with a lock-in period of 5 years (effective from April 2018) and are non-transferable.
• 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.
• Interest Rate: 54EC bonds offer 5% rate of interest payable annually.