Definition
Section 54EC Bonds
Section 54EC bonds are specified capital-gains bonds (issued by entities like NHAI, REC, PFC and IRFC) in which you can invest long-term gains from selling property to claim a tax exemption.
If you reinvest the long-term capital gain from selling land or buildings into these bonds within the time limit set by the section, the gain is exempt up to the prescribed annual ceiling. The bonds carry a lock-in period and pay a modest, taxable interest, so the benefit is the tax saved rather than the yield earned.
Section 54EC is attractive when you do not wish to buy another property to save tax under Section 54/54F. The key constraints are the investment deadline after sale, the annual investment cap, and the lock-in during which the bonds cannot be sold or pledged.
Related terms
- Real Estate Capital GainsReal estate capital gains are the profits you make when you sell a property for more than its cost, and they are taxable in India as short-term or long-term gains.
- Section 54Section 54 of the Income Tax Act lets an individual save tax on long-term capital gains from selling a residential house by reinvesting the gain in another residential house.
- Section 54FSection 54F allows exemption of long-term capital gains from selling any asset other than a residential house — such as land, shares or gold — if you invest the net sale proceeds in a residential house.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.