Capital Gain Bonds

If you’ve recently sold a real estate asset or planning to sell one and are concerned about the long-term capital gains (LTCG) tax, then capital gain bonds could be your smartest legal route to saving taxes. These bonds fall under Section 54EC of the Income Tax Act and have become a reliable tool for investors who want to reduce their tax burden while keeping their money secure.

In this in-depth guide, we’ll break down everything you need to know about capital gain bonds—from their features and tax benefits to their limitations, eligibility, and how they compare with other tax-saving options.

What Are Capital Gain Bonds?

Capital gain bonds, commonly referred to as 54EC bonds, are debt instruments issued by certain government-authorized institutions. They allow individuals and entities to claim exemption from LTCG tax incurred from the sale of immovable property such as land or buildings.

When you invest your gains into these bonds within a specific time frame, you become eligible for a tax exemption, thereby preserving more of your profit.

Eligibility Criteria

To invest in capital gain bonds and claim the exemption, you must meet the following conditions:

1. You must have earned long-term capital gains from the sale of immovable property held for more than 24 months.

2. The investment must be made within 6 months from the date of sale.

3. The maximum investment allowed in one financial year is ₹50 lakhs.

4. Bonds must be held for a minimum lock-in period of 5 years.

This makes the scheme particularly beneficial for property sellers who want to avoid paying the 20% LTCG tax.

Authorized Issuers of Capital Gain Bonds

As of now, only a few institutions are authorized by the central government to issue 54EC bonds:

• REC (Rural Electrification Corporation)

• PFC (Power Finance Corporation)

• IRFC (Indian Railway Finance Corporation)