54 EC Capital Tax Bonds


Whenever you promote any capital asset like a home, gold, bonds or debt mutual funds over an extended interval, you usually make a PROFIT, which known as as Capital beneficial properties. That is handled in another way from “curiosity revenue” which you get from mounted deposits and these capital beneficial properties are taxed at 20%.

In case of promoting home, these quantities will be fairly massive and in the event you reinvest these capital beneficial properties, you’ll not must pay any taxes.

Nonetheless at occasions, an investor might not need to spend money on one other home and in addition not prepared to pay taxes.

54 EC bonds might help you in saving the capital beneficial properties tax.

What are 54 EC Bonds?

54EC bonds (capital beneficial properties bonds) are the very best funding choice via which an investor can save long-term capital acquire taxes.

54EC bonds are particularly meant for buyers incomes long-term capital beneficial properties and would love tax exemption on these beneficial properties. The tax deduction is on the market below part 54EC of the Revenue Tax Act. Nonetheless, 54EC bonds can solely save long run capital beneficial properties taxes, and never brief time period capital beneficial properties taxes. Try our Capital Good points Tax Calculator

The utmost restrict for investing in 54EC bonds is Rs. 50 Lacs.

As we stated above, a person can spend money on these bonds after receiving capital beneficial properties from promoting a property, sale of land, or constructing (residential or industrial).

If you wish to save your capital beneficial properties, you’ll have to make your investments in 54 EC bonds inside 6 months from the date of sale of the property or earlier than submitting your revenue tax returns.

Options & Advantages of 54 EC Bonds

  • As 54EC bonds are usually AAA rated and therefore it’s the most secure and safe bond as it’s backed by the Authorities of India.
  • Curiosity earned on these 54EC bonds is taxable in nature. So when you don’t pay any tax on the lump sum you bought after promoting the home or one other property, the curiosity earned from these bonds are taxable.
  • No TDS is deducted on curiosity from 54EC bonds and wealth tax is exempted.
  • 54EC bonds include a lock-in interval of 5 years and are non-transferable in nature.
  • The minimal funding an investor could make in 54EC bonds is 1 bond amounting to Rs. 10,000 and the utmost funding in 54EC bonds is 500 bonds amounting to Rs 50 lakhs in a monetary 12 months.
  • The curiosity these bonds provide is at 5.75% which is payable yearly. This isn’t very excessive curiosity, and in the event you pay taxes on these, the ultimate submit tax returns shall be a lot decrease.
  • These bonds will be held in Demat Kind and Bodily Kind as properly.
  • Lengthy-term capital beneficial properties from investments in 54EC bonds or sale of 54EC bonds will be reinvested with a purpose to save tax.

Eligible Bonds below part 54 EC –

So after we say 54 EC bonds, it’s not precisely a product in itself. There are literally Four forms of bonds which come below the definition of 54 EC bonds. They’re as follows –

Allow us to see the comparability between REC and NHAI as these are the preferred choices to take a position.

5.75% 5.75%
  • Minimal Funding Required
Rs. 10,000 Rs.10,000
  • Most Funding Required
Rs.50 Lakhs in Monetary Yr Rs.50 Lakhs in Monetary Yr
5 yrs 5 yrs
Yearly Yearly

What in the event you don’t spend money on 54 EC bonds?

In the event you don’t need to spend money on these 54 EC bonds and moderately need to spend money on different monetary merchandise like a hard and fast deposit, debt mutual fund or fairness mutual funds – then do not forget that first you’ll have to pay the tax, after which you possibly can make investments solely remaining quantity which can fetch increased return in comparison with 54 EC bonds returns.

Nonetheless a fast calculation reveals that you’re higher off investing in EC bonds, if you’re not wanting ahead to spend money on fairness mutual funds and are able to take danger. Normally it’s often a good suggestion to place cash in 54 EC bonds and over 5 yrs, you’ll have first rate sum of money.

Solely if you’re able to take excessive danger, and aren’t in search of lock in, then you possibly can put this cash in fairness mutual funds. Beneath is a comparability between all Four choices we talked about

What? 54 EC bonds Fastened Deposit Debt Mutual Funds Fairness Mutual Funds
Capital Good points Quantity 50,00,000 50,00,000 50,00,000 50,00,000
Tax to be Paid earlier than investing NIL 1000000 1000000 1000000
Quantity Remaining for Funding 5000000 4000000 4000000 4000000
Return 5.75% 7% 8.50% 11%
Taxes on Funding 30.00% 30% Approx. 6% (assuming 4% inflation in CII index and 20% capital beneficial properties tax) 10% capital beneficial properties tax with out indexation
Publish Tax Returns 4.03% 4.90% 7.99% 9.90%
Remaining Maturity Quantity (Publish Tax) 6090579 5080862 5874591 6412811
Notes That is Assured That is Assured This isn’t 100% assured, however the closing returns you’ll get shall be near assumption likely That is absolutely depending on the fairness returns, which will be very unstable, so the ultimate end result will be a lot much less, or a lot increased than the idea

Word that the one choice which has some possibilities of beating the 54 EC bonds returns is fairness, however it’s important to do not forget that this isn’t an choice for everybody. Just one who can take proper choices about fairness and is able to take increased danger / excessive reward path ought to get into it.

In any other case, total investing in 54 EC bonds seems like the most suitable choice, however it’ll include strict lock in.

So, this was all that I needed to share on this article. Let me know your queries within the remark part.

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