Under Section 54 EC of Income Tax, 1961 an investor need not pay any tax on any long-term capital gains arising on sale of any asset, if the amounts of capital gains are invested in certain specified bonds. Rural Electrification Corporation Limited (REC) & National Highways Authority of India (NHAI) are permitted to issue capital gains bonds under Section 54 EC.
Some key features of Section 54 EC bonds are:
- AAA rated
- Interest is taxable although no TDS is deducted
- Lock-in of 3 years and non- transferable
- Minimum investment-1 Bond amounting to Rs. 10,000/- and maximum investment-500 Bonds amounting to Rs. 50 lakhs in a financial year
- Rate of Interest 6.00% p.a. payable annually
- Bonds can be held in Demat /Physical Form
- Facility of Payment of Interest and Redemption through NECS
- The Bonds will automatically redeem after expiry of three years