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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 (wef 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. 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 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 and REC and notified by the Central Govt (bond issued by power finance corp/Indian Railway Finace Corp). for a minimum period of 3 years (5 years if such bonds are issued on or after 01.04.2018)

In cases where the assesse converts the specified asset into cash, or takes a loan or advance on the security of such specified asset within a period of 3 years (5 years if the investment is made in specified asset on or after 01.04.2018) from the date of its acquisition, the amount of Capital Gain exempt u/s 54EC shall be deemed to be Long Term Capital Gain of the previous year in which the Long Term Capital Asset is transferred or converted into money or on the date such loan or advance is taken.

 The investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. Capital gain shall be exempt to the extent of amount of investment in such specified bonds upto a maximum of Rs.50 Lacs.

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 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 and REC bonds carry interest at 5.75 per cent per annum, payable annually wef 01.04.2018. 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.

Also Read:

Brief Synopsis of Capital Gain Exemption u/s 54, 54EC & 54F

All about Section 54, 54B, 54D, 54F, 54GA, 54EC, 54G & 54GB

Exemption under Section 54, 54EC & 54F -FAQs & case laws

(Republished with amendments.)

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103 Comments

  1. Vikrant says:

    Our family patriarch expired before completion of this Bond’s tenure completion, however, 3 years have completed since investment in the Bond. Can the amount now be withdrawn before maturity date by the heirs? Is any penalty in this case?

  2. S R PATEL says:

    I have purchased REC 54 EC bondscoach on 26 Nov 2021. Is it compulsury to show accrued interest for 2021-22 in it return for 2022-23? Is REC issued accrued interest certificate?

  3. A B S SHETTY says:

    Whether the amount invested in capital gain tax bonds ( gain arising from sale of property), can be redeemed/ encashed by the nominee, before the lock in period of 5 years ,on the demise of the holder. Or the nominee should hold the same in his/ her name till its due date.
    I shall thank you for your advice.

  4. Shankar Mishra says:

    I have tax saving bond’s of NHA54EC I have not received intrest of this financial year where I inquiry pl.guide me. National Highway authority-sec. 54EC

  5. Narayan says:

    Question is : If 54EC bonds are purchased from LTCG NRO funds,after maturity the funds from bonds which will be credited to NRO accounts,can be ‘Remitted’ under 1 M$ allowance or THOSE funds can NEVER permitted to be ‘remitted’ from NRO account?
    OR since bonds are brought under term of ‘Non repatriable)?

  6. DDas says:

    Sir, A Company has land and would like to sale the land and have incurred cost for development. What are the exception of relief on account of Long Term Capital Gain tax? Can Long Term Capital Gain Tax be adjusted with Business Loss and Carried forward loss?

  7. Purnajit Chatterjee says:

    In our case 1st holder passed away within 6 months of REC bond allotment (benefit U/S 54EC). Joint holder was his daughter, who did not own the property. What steps to be taken next? Should the name of 1st holder be deleted and since second holder is an heir (but not property owner at point of sale) would it be necessary to continue to invest in te REC bond? Please guide me
    Thanks

  8. Nidhi Badlani says:

    After expiry of 5yrs from investment, where the money can be applied???is it only for plot property acquisition construction or for any purpose?
    And the interest on these bonds can be withdrawn used monthly annually or is accumulated???

    1. OPVarma says:

      If someone buys capital gain bond in joint name.
      Who claims the facility if 54 EC
      1) first holder
      2) first and second holder in 50-50 percent
      3) second holder.
      4) none.

    2. OPVarma says:

      If someone buys capital gain bond in joint name.
      Who claims the facility of 54 EC for income tax puoposes
      1) first holder
      2) first and second holder in 50-50 percent
      3) second holder.
      4) none.

  9. Ram says:

    A question: If 54EC bonds are purchased from LTCG NRO funds,after maturity the funds from bonds which will be credited to NRO accounts,can be ‘Remitted’ under 1 M$ allowance or THOSE funds NEVER permitted to be ‘remitted’ from NRO account?
    OR since bonds are brought under term of ‘Non repatriable)?
    Thanks.

  10. CA Geetaa Guwalanii says:

    54EC deduction allowed if investment within six months of transfer. There is no restriction regarding investment to be made before the due date of ITR or deposit of amount in specified Capital Gain account..Am i right?

  11. Payal.. says:

    There is a LTCG of Rs. 93 lacs from selling a house property.
    I have invested Rs. 50 lacs in National Highway Bond within 6 months of gain.
    And Rs. 27 lacs in purchasing another house within 6 months of gain.
    How much tax should I pay to government in this case.?
    Will it be legal to avail deduction under both section 54 and section 54EC?

  12. Prerna Jain says:

    My uncle received capital gain of INR 50 lacs by sale of land however, he died before claiming the exemption of section 54EC. Will his wife be able to claim the exemption and how?

  13. Kamlesh Kathiriya says:

    I sold my industrial shed on 26th March 2018. What time I have to buy new house? What time I have to buy REC bond?

  14. C M Muralidhara says:

    1) Whether the tax on Long Term Capital gain earned on sale of property can be calculated without Indexation also for AY2018-19. If yes, what will be the tax rate.
    2) Whether the tax on Interest earned on 3yr lockin Capital Gain Bonds 54EC can be paid each year taking into account notional income like interests on NSCs OR only to be paid at the time of redemption

  15. Amber Sayyed says:

    I Have sold my land on 14.09.2016 and I want to Invest in sec 54EC i.e NHAI and REC Bonds. My question is what would be my last date of investment. Would it be 13.03.2017 from the date of sale or 31.03.2017 i.e till the end of March for the purpose of counting of 6 month?

  16. A D Sardana says:

    I have sold a residential plot in January 2017. I ntend to buy. Capital gain Tax bonds. My question is
    1) Only Capital gain is to be invested or entire sale proceeds are to be invested.
    2) Does REC/NHAI directly sell bonds or through some Bank.
    A D Sardana

  17. ozer says:

    i want to sell my pagdi house n buy an ownership flat. Can I buy the ownership house first with my money on loan N than sell my pagdi house N repay my loan amt from it N get LTCG exemption ? Also can I deposit cash in capital gain tax account? If so is there any limit for it. Can i make an interior out of the money deposited in capital gain tax a/c? Pl advise. Thanks

  18. VS Murthy(VEESEM) says:

    Hi,
    My indexed value of my sold house is 60 Lakhs. I have sold the house at 150 Lakhs and reinvested Rs 65 lakhs for an apartment.Please tell me what will be my LCG nad what other investments canbe made to avoid Capital Gains Tax
    Regards

  19. rtiku says:

    Dear Sir,

    Require advise on the following.

    Had purchased a land piece in 2011 and sold in July 2015.
    The net sale value was 10Lakhs and the LTCG (after considering indexation) is 5L.

    Please advise for:
    1. Do I have to invest 5L or 10L for purchase of residential property for avoiding payment of LTCG tax
    2. Since I have to open a Capital Gain account before 31/07/2016, do I have to put in the entire sale amount (10L) or only the Capital gain amount (5L) into the account.
    2. If I purchase a under construction property, does the registration need to be carried out within 2yrs (July 2017) or the possession has to be completed.
    3. In case the property purchased is say 20Lakhs and by July 2017 I pay 5L/ 10L to buider but construction is still not over, will that serve the purpose.
    4. In case I decide not to invest further, I can pay the tax on capital gain amount by July 2017 or earlier. And will I be liable to pay some penalty on the tax amount.

  20. Sunil says:

    Dear Sir
    54EC Bonds of mine will get matured end of Feb 2016 but I have Indian income tax enquiry currently going on. Will my payment will be affected by this. I am NRI
    Thank you for your help
    Reads
    Sunil

  21. megha says:

    our assessee has invested Rs.30laks u/s 54EC whether interest received on these bonds can be shown as income from Long Term capital gain??

  22. megha says:

    Our assessee has invested Rs.30 Laks u/s 54EC. Whether interest received on these bond can be shown as income from Long Term Capital Gain??

  23. Anthony says:

    I purchased a house plot in 2000 for Rs.55,000 and sold it under govt. acquisition in December 2014 and rcvd. the sale proceeds of Rs.564000 in Feb. 2014 . I have not purchased a house instead I purchased another house plot out of the sale proceeds in May, 2014. Whether the amount invested in purchasing another plot is exempted from tax. Or should i purchase a house within two years or construct a house within three years? Please advise me the procedure.

  24. paul says:

    Dear Sir, I am planning to sell my jewels and buy apartment, do I have to pay taxes on my jewels?
    Note: All the money (including profit) from the sell of the jewels will go into buying the apartment.

    Thanks
    Meenap

  25. Shyamkumar Varma says:

    Is it OK to invest the entire consideration amount so received by selling the long term capital assets i.e. land (acquired by way of inheritance and acquisition cost not known) in Sec-54EC NHAI or REC bonds? Is there any penalty for investing entire sale consideration in Sec-54EC NHAI or REC bonds?

  26. T L P Raju says:

    I happened to invest Rs. 44.00 Lakhs in REC Capital Gain Tax Exemption Bonds on 14/03/2013. Please clarify, the interest being paid annually after 30th June is tax free or taxable. After lock-in period of 3 years will the principle amount of Rs. 44.00 Lakhs will be automatically paid to me or do we have to separately request for it?

  27. RAMAKANT says:

    SIR,
    IF I SALE MY ANCESTRAL PROPERTY CAN I INVEST THE AMOUNT FOR CAPITAL GAIN INVESTMENT BONDS FOR A PERIOD OF THREE YEARS IS THAT AMOUNT IS TAXABLE? I AM A GOVT. SERVANT.
    1. Suppose if I Invest Rs.25 Lacs in Sec-54EC REC Bond and after 3 years say the bond amount of Rs.25 Lacs will mature whether that is again taxable or that amount is fully tax free
    2. if the amount acquired from selling a LAND has not been put in the capitals gain tax savings bond within six months of selling the PROPERTY, 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 1 YEAR of selling
    LAND.
    3. can i invest the same amount for purchasing the property on my name.
    4. i have to show that amount at the time of filling returns
    THANKS

  28. rajesh says:

    after maturity of NHAI bond do i need to invest in property or bond again for tax extemption
    can i take these bonds on my wife’s name to save tax on interest…she is housewife
    thanks

  29. jotpreet says:

    sir,
    can u plz tell that after the expiry of bonds after 3 years whether the princpal amt is tax free or again we have to invest that amount into some property
    Regards
    jotpreet singh

  30. RAVI says:

    DEAR SIR, You told Joint applications shall also be included for the purposes of this limit. Who will liable to pay TAX and also file IT Return – Either 1 applicant or 2nd applicant.

  31. Ashutosh K says:

    Hi,
    My mother is selling a property (25 year old property) for 25L rs. we presently have no plans of reinvesting in another property. So if she puts all the amount received in NHAI or REC bonds, would she be completely exempted from the Income-tax that the amount would otherwise attract. (Age 55 year, Occ.: housewife) What forms or documents have to filled for the exemption (54EC I believe). She does submit 15G every year. Kindly let me know!
    Thanks.

  32. Kiran says:

    One of my friend has purchased (& is currently occupying the same)a residential property for Rs.90 Lacs during FY 14-15.He took a home loan of Rs. 90 Lacs on the said property.
    He has vacated the property where he was staying prior to purchase of above property. This property is currently loan free. He was staying here for 10 years.
    Both the properties are jointly owned by he and his wife. My query is that whether by selling the vacated property and paying the proceeds thereof for part closure of home loan availed against another property where he is currently residing can he still get benefit from long term capital gain ?

    Also if the sales proceeds of vacated property are taken by one of the person in his individual bank account, will there be any issue from income tax perspective ?

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