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Save capital gains tax on property sale - legally
Section 54EC of the Income Tax Act provides an exemption from Long-Term Capital Gains (LTCG) tax on sale of land or building if the gains are invested in specified bonds within 6 months of the sale. These bonds are issued by government-backed infrastructure companies.
By investing your capital gains (up to ₹50 lakh per year) in these bonds, you can completely avoid paying the 20% LTCG tax on property sale. The trade-off is a 5-year lock-in with only 5% annual interest.
Currently, four issuers are eligible under Section 54EC: NHAI (National Highways Authority), REC (Rural Electrification Corporation), PFC (Power Finance Corporation), and IRFC (Indian Railway Finance Corporation).
You can save up to ₹10 lakh in taxes (20% of ₹50 lakh) by investing in 54EC bonds. The remaining ₹20 lakh gain will be taxed normally.
National Highways Authority of India - builds and maintains national highways.
Rural Electrification Corporation - finances rural power infrastructure.
Power Finance Corporation - finances power sector projects.
Indian Railway Finance Corporation - finances railway infrastructure.
Investment must be made within 6 months from the date of property transfer. Miss this deadline and exemption is lost.
Maximum investment is ₹50 lakh per financial year. If your gain exceeds this, remaining amount is taxable.
Exemption applies only to LTCG from sale of land or building (held >24 months). Not for shares, gold, or other assets.
Bonds cannot be sold, pledged, or transferred for 5 years. No premature exit even in emergencies.
Property must be held for more than 24 months to qualify as long-term asset. Short-term gains don't qualify.
Ideally use your own funds. Using borrowed money may complicate tax claims. Consult a CA for specific cases.
Apply directly on issuer websites (NHAI, REC, PFC, IRFC). Fill online application, submit documents, and pay via RTGS/NEFT.
Several banks act as collection agents. Submit application at bank branch. Convenient if you bank with authorized collector.
Online bond platforms like BondScanner, Goldenpi, etc. sometimes facilitate 54EC bond purchases. Check availability.
| Aspect | Details |
|---|---|
Exemption Under | Section 54EC |
Max Exemption | ₹50 lakh per FY |
Applicable On | LTCG from land/building only |
Tax Saved (if 20% LTCG) | Up to ₹10 lakh |
| Aspect | Details |
|---|---|
Interest Rate | 5.00% p.a. |
Tax Treatment | Fully taxable at slab rate |
TDS | 10% if interest > ₹5,000 |
Form 15G/15H | Can be submitted to avoid TDS |
Important: While the capital gain itself is exempt, the 5% annual interest received on the bonds is fully taxable at your slab rate. Factor this into your decision.
| Feature | Section 54EC | Section 54 | Section 54F |
|---|---|---|---|
| Asset Sold | Land or building | Residential house | Any asset (except house) |
| Investment Required | 54EC Bonds | New residential house | New residential house |
| Max Exemption | ₹50 lakh | ₹10 crore | Proportionate |
| Time Limit | 6 months | 2 years (buy) / 3 years (construct) | 2 years (buy) / 3 years (construct) |
| Lock-in | 5 years (bonds) | 3 years (new house) | 3 years (new house) |
| Best For | Don't want to buy house | Selling house, buying another | Selling non-house assets |
5% return is well below inflation and market returns. Over 5 years, you may lose significant purchasing power.
No exit for 5 years, no matter what. Cannot sell, pledge, or use as collateral. Money is completely locked.
After tax on interest (at slab rate), real post-inflation return may be negative. Purely a tax-saving tool.
Common questions about 54EC Capital Gains Bonds
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