pri Specified bond for Section 54EC of Income Tax Act – 1961 Specified bond for Section 54EC of Income Tax Act – 1961

Specified bond for Section 54EC of Income Tax Act – 1961

The benefit under section 54EC can be availed 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 sale any capital asset (w.e.f A.Y 2019-20, the said long term capital asset shall be land or building or both) which he has held for a period exceeding 24 months.

  • Time limit for investment in Specified bond

The assesse should within a period of 6 months from the date of transfer invest the gains in Long Term specified bonds as issued by NHAI, REC, PFC and IRFC for a minimum period 5 years if such bonds are issued on or after 01.04.2018.

NHAI – National Highways Authority of India

REC – Rural Electrification Corporation Ltd

PFC – Power Finance Corporation Ltd

IRFC – Indian Railways Finance Corporation Limited

  • Exemption Limit

The investment made by an assessee in the long-term specified asset from capital gains arising from transfer of assets shall be exempt to the extent of amount of investment in such specified bonds, maximum of Rs.50 Lacs.

  • Rate of Interest and tax liability on interest on Specified bond

These bonds carry a lower rate of interest as compared to other investment options; currently the rate of interest is 5.75% for the financial year 2019-20.

Interest on this specified bond is not exempted; Tax on interest would be liable to be paid as per the income tax slabs of the taxpayer. Thus, only the amount invested is exempted from the capital gain tax. The interest that is earned on these bonds is liable to income tax.

 Tax Free Bonds:-

Under Section 10 (15) (iv) (h) (i.e. NHAI Tax Free Bonds, REC Tax Free Bonds, PFC Tax Free Bonds, IRFC Tax Free Bonds.) The interest income earned is exempt from tax under Section 10 (15) (iv) (h) of the Income Tax Act, 1961. There will, however, not be any other tax benefit on the amount of investment made in such bonds. These tax free bonds are not covered under section 54EC. 

Disclaimer: The views presented are in personal & in generic form and not as a legal advice. Users of this information are expected to refer to the relevant existing provisions of the applicable laws.

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July 2021