Capital Gain Bonds
Capital Gain Bonds, officially known as Section 54EC Bonds, are issued by Public Sector Undertakings (PSUs) in India, designed to help taxpayers (save on long-term capital gains tax) and borrower (companies can borrow funds at cheaper rate).
They function as a tax-saving mechanism under Section 54EC of the Income Tax Act, 1961.
Key Features and Rules
Tax Benefit
Investing in these bonds allows you to claim an exemption on Long-Term Capital Gains (LTCG) that arise from the sale of a capital asset, most commonly land or a building, or both.
Lock-in Period
The bonds come with a mandatory 5-year lock-in period. During this period, they are non-transferable, non-negotiable, and cannot be used as security for any loan.
Investment Limit
The maximum investment that qualifies for the tax exemption is ₹50 Lakhs across all eligible bonds.
Issuers
These bonds are issued by the following Public Sector Undertakings (PSUs)
- Rural Electrification Corporation (REC)
- Indian Railway Finance Corporation (IRFC)
- Power Finance Corporation (PFC)
Interest
They offer a fixed interest rate, which is typically paid annually. Importantly, the interest income received from these bonds is taxable.
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