• Dec
  • 11
  • 2013

Tax benefit under section 54EC on long term capital gain

The benefit under section 54EC can be availed of only if there is an income from a capital asset, being long-term in nature. Long-term capital gains are the profit that a person makes when he sells any capital asset (for example, any immovable property, jewellery or shares) which he has held for a period exceeding three years. An exception is his holding of shares in which the holding period has been fixed at one year.

Any person (including NRI out of NRO account on a non-repatriable basis) and Hindu undivided family (HUF), through its Karta, can make investments (not exceeding Rs 50 lakh in a given financial year) in the two bonds notified by the Government of India. In case only part investment is made, the amount of deduction gets reduced in proportion to the investment.

The two corporations which have been notified by the Government of India as being eligible for issue of these bonds are (a) National Highway Authority of India (NHAI) and (b) Rural Electrification Corporation (REC).

These bonds carry a lower rate of interest as compared to other investment options, such as Public Provident Fund, bank fixed deposits and National Savings Certificates, among others. The main reason for this lower rate of interest is that the investor gets the benefit of reducing his income tax liability upon investing in these bonds, if he has long-term capital gains. These bonds are issued for a fixed maturity period of three years. These bonds have been rated as “AAA/Stable” by Credit Rating and Information Services of India (CRISIL).

The investment has to be made within six months from the date of the transfer in order to be eligible for claiming the benefit of deduction under section 54EC. The face value of these bonds is Rs 10,000, and the full amount has to be paid upfront along with the application.

The maximum amount that a person can invest in these bonds (NHAI and REC combined) in any financial year is Rs 50 lakh. If a person has long-term capital gains which have accrued to him after 1 October of any year, and the amount of capital gains exceed Rs 50 lakh, he can split his investment by investing Rs 50 lakh up to 31 March of the following year and the balance on 1 April of that year. The balance amount in this case, however, should not exceed Rs 50 lakh. By doing this, he can have the benefit of investment of up to Rs 1 crore. Joint applications shall also be included for the purposes of this limit.

The deemed date of allotment is the last date of the month in which the application is made and the amount is realised by the issuer.

These bonds can be held in dematerialised form or in physical form. The bonds can be held under a single name or joint names. The facility for nomination is also available on these bonds. These bonds are non-transferable, non-negotiable and cannot be offered as security for any loan or advance. However, transmission of the bonds to legal heirs in case of death of the bondholder is allowed under the rules.

The NHAI bonds carry interest at 6.25 per cent per annum, payable annually on 31 March every year. REC bonds carry interest at 5.75 per cent per annum, payable annually on 30 June every year. The interest earned on these bonds is fully taxable under the head “Income from Other Sources”. No tax at source would be deducted from the interest on these bonds.

(Republished with amendments.)

Sandeep Kanoi

32 Responses to “Tax benefit under section 54EC on long term capital gain”

  1. ibnsuleman bhai says:

    After completing 3 years if I sell my flat in such a way that capital gain is zero after availing of indexation benefit and thus receive 130 lacs.Will there be any other tax on it? or it will be tax free totally in my hand with no legal conditions asto where I invest it.
    Note this flat was bought to save capital gain.Thanks.

  2. ibnsuleman bhai says:

    Sir,I am to receive my amount in REC on 15th April 2014 that was invested to save capital gain.Is this amount tax free in my hand? Interst thereon was taxable added to my other taxable income.
    If I sell a property in this month or say end December 2015 for 1 crore can I invest 50 lacs in the financial year of sale and 50 lacs in the financial year that follows it,thus total 1 crore against one sale of property,will my capital gain tax be zero?

  3. sk says:

    Can anyone pls give me some advice.
    if the amount acquired from selling a house has not been put in the capitals gain tax savings bond within six months of selling the house, then what is the procedure to be followed for exemption from capitals gain tax.is there any way out for capital gains tax exemption.can anyone please give some advice.will there be any use if the amount is put in a capitals gain tax savings bond after 9 months of selling

  4. Chandrakant says:

    Can I invest my Long Term Capital Gain Tax for Vacant Plot or Land?

    Pl also update me with hoe to reflect the gain ITR-2, with proper speciman.


    CS Choudhari

  5. Pavitra says:


    I had a RSU of MNC company. I had sold and incurred capital gains from the same this year. Can i invest in the bonds under 54EC bonds and claim the exemption.

    Can anyone please clarify?

  6. ramesh says:

    i sold commercial proeprty and i purchased a residential house. if i can take exemption on capital gain.

  7. nita says:

    My Capital Gains Bonds of 6% mature in August 2014 .Is the interest on these Bonds tax-free??
    Is the Bond amount of Rs.50 lacs to be compulsarily re-invested???
    Is the long-term gain tax to be re-invested as per IT rules?
    please enlighten me.
    i am a senior citizen female.
    Thank you.

  8. Roy says:


    Is the LTCG bonds on maturity, taxfree or taxable?

    Is there a provision to re-invest on its maturity for another term?

    Can I invest on maturity the complete bond value on to a new property?

    If not taxable, can I use this bond value on maturity for any other tax exemptions schemes?

    Appreciate your advice/response to the above queries please.


  9. Sanjay says:


    Suppose if a person sold his property in Rs.45 lacs and he bought a new property of Rs.15 Lacs remain Rs.30 Lacs Invest in Sec-54EC REC Bond on January 2011 and after 3 years say Jan-2014 the bod amount of Rs.30 Lacs will mature whether that Rs.30 Lacs is again taxable or that amount is fully tax free?

  10. prabha sekhar says:

    we are nri , we sold our house , capital gain is 50 lakhs. we will deposit this money in nro account , and invest in 54EC bond . After 3 yrs we want to repatriate
    that amount ( 50 lakhs + interest )back to usa.Is there any condition/rules I can not repatriate ? .

  11. navjeet says:

    pls tell me the rec capital gain BONDS are made available to customer in how much time

  12. shanmugaram says:

    hi sir,

    i have got a long term capital gain of rs 8 lakh on 17 th of october 2011,
    i already have another property in my name , so i can not avail the reinvestment exemption,.
    i wan not aware of the 54ec exemption plan, now i am about to do the filing it is nearly 11 months after the transfer was done ., please advise me on how to save the capital gain tax.,

    thank u in advance..!

  13. dilip says:

    I am an individual holding property under category other than residential . I intend to dispose the same. with the proceeds i will bye a residential house. even then i left with some amount for disposal. can i  invest the same under  section 54EC. so as not to attract capital gain.  

  14. Sivakumar B says:

    You have mentioned that I can park the Long Term Capital Gain out of a House selling in the capital gain saving account. After partking the amount say for 1year am I allowed to invest in 54EC bond and still claim excemption on LTCG.

  15. Dilbagh singh says:

    My income is 5.75 lakh ,how much income i can invest in lic and bond to save income tax.

  16. Vidya devi says:

    I need a information about LTCG Tax Free Bond of REC undre sec. 54 EC. I need to invest Rs. Five lakh in such bonds.These bond can be purchase from any bank  saving account or  require to open another Capital Gain deposit account in nationalised bank only.Please  give me this information.

  17. Abani says:

    I need a clarification about maturity proceeds, whether it is taxable or not?

  18. dilip yashwant phatak says:

    please give me latest information about 54ec exemption up to 1 crore investing in two financial years

  19. dilip yashwant phatak says:

    Please give me latest news about investing Rs.One crore in different financial years

  20. Suresh says:

    Whether amt. received on the maturity of 54EC bonds are taxable?

  21. vkjain says:

    In budgrt 2013, is INTEREST rate on capital gain BONDS maintained at 6% per annum or ANY CHANGE IS PROPOSED in INTEREST RATE. kindly advise on my mail id: vk.jain@yahoo.co.in …Thanks

  22. vkjan says:

    In budgrt 2013, is INTEREST rate on capital gain BONDS maintained at 6% per annum or ANY CHANGE IS PROPOSED in INTEREST RATE. kindly advise…Thanks

  23. vswami says:

    “If a person has long-term capital gains which have accrued to him after 1 October of any year, and the amount of capital gains exceed Rs 50 lakh, he can split his investment by investing Rs 50 lakh up to 31 March of the following year and the balance on 1 April of that year. The balance amount in this case, however, should not exceed Rs 50 lakh.”

    ITAT Says ‘No’.

    See recent order in  ACIT vs. Raj Kumar Jain & Sons (HUF) (ITAT Jaipur)

    The view the Tribunal has taken is seen to be very well reasoned and based on sound logic.

    What requires a special noting is that, .the suggestion to the contrary , if followed as a matter for tax planning, and  especially, for paying advance tax, the taxpayer is most likely to be assured of a long drawn battle with the Revenue. Based on such a suggestion were he to make an investment,  he is quite likely  to meet  the proverbial fate of  falling  between 2 stools.

  24. ASHOK SARVAIYA says:

    Pl give the case law for investment of Total  Rs. 1 Cr allowabel. i.e Rs. 50 Lacs in One Financial & Another Rs. 50 lacs in next financial for sale of One Capital Assets in November/December.You 

  25. Ashit says:

    Can you tell me what will be effect when Pvt. ltd co. transfer bonds u/s. 54EC to LLP with in 3 years….??? Can LLP can continue the same for balance years and is there will be any CG on such transfer…???? because such transfer is not taxable u/s.47 if conditions are satisfied. .??

  26. kamlesh shah says:

    I have purchase 4 agri land in 1980 to 1990 & in 1997 i goes for non agriculture & sold around 100 plots in 2008 & 2009.and the sell amount recieved was invested in 54 ec. so i want to clarify that whether capital gain is there or it is a business income. reply me soon

  27. NAGAMOHAN says:

    Suppose if a person Invest Rs.50 Lacs in Sec-54EC REC Bond on January 2011 and after 3 years say Jan-2014 the bod amount of Rs.50 Lacs will mature whether that Rs.50 Lacs is again taxable or that amount is fully taxfree.

  28. kishore surana says:

    income on agriculture land on sale not capital gain

  29. narahari says:

    i invested an ammount of Rs 10,80,000 in NHAI bonds in oct 2009 and i got interest of an ammount Rs 26,000 for the period 2009-10. under what section i can claim IT rebate for the interest ammount

  30. Bonson says:


    I had 2 questions:

    1. My father had some agricultural land which was transfered to my mother;’s name after his demise. My mother sold the land for Rs. 10 Lacs.

    Is sale of agricultural land considered as Capital gain?

    2. From where can I purchase these NHAI or REC bonds?

    Best Regards,

  31. Gautam says:

    If the amount is more than 1 Cr. then you have to open a Capital gains AC in a nationalised bank, and then purchase a resi property within 2 yrs or construct one with 3 yrs from the date of sale of your property. Even after that if some money is not utilised for the above, a flat rate of 20% tax is payable.

  32. A.K.SHAH says:


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