Capital Gain Bonds FAQs

Below are the FAQs you must go through to know about general questions on Capital Gain Bonds.

What is Capital Gain Bond?

Capital Gain Bonds are bonds notified under Sec. 54EC of the Income Tax Act’ 1961 by investing in which the profits arising from the sale of a Long Term Capital Asset (Land/Building or both) would be exempt from tax subject to certain conditions.

What constitutes Capital Gains?

Under Section 54EC, capital gains are those that arise from the transfer of long term capital asset being land/building or both.

Are the benefits under this section applicable for short term gains?

No. Only Long Term Capital Gains qualify under this scheme.

What qualifies as Long term Capital Assets?

Land and Buildings qualify as long-term capital asset if held for more than 24 months.

Is there a time limit of investment in these bonds?

The gains have to be invested in the bonds within 6 months of such realisation or before the filing of IT returns. Such benefits cannot be split into two financial years

What is the tenure of these bonds?

The bonds are redeemable after 5 years. This is a lock-in period.

Where do I have to invest the capital gains to avail Section 54EC benefits?

The capital gains have to be invested in specified long term assets, via bonds. These bonds are generally issued by National Highway Authority of India (NHAI) or by the Rural Electrification Corporation Ltd.

What is the interest rate on these bonds?

The interest rate on these bonds is notified by the Government from time to time. Currently, the interest rate is 5.00% pa.

Is the interest on these bonds taxable?

Yes, the interest on these bonds is liable to tax on an accrual basis as per the income-tax slab of the assessee. TDS is not applicable.

What is the face value of such bonds?

The face value of the bonds is Rs.10,000/-

Is there a limit on invested amount?

The investor can invest the whole or part of the capital gains realised with a minimum investment of Rs. 10,000 and a maximum of Rs.50 Lacs per financial year.

Can I sell the bonds before completion of 5 years?

The bonds can be converted into cash before the stipulated time. However, the amount exempted under Section 54EC will automatically be deemed as long-term capital gains for the previous financial year and will subsequently incur tax at the applicable rate. The same scenario applies if a loan is taken against the bonds.

What if I am not able to invest in the bonds within the stipulated time?

If the individual is not able to invest in the bonds within 6 months, he/she can deposit such amount in a specified deposit of a PSU bank and claim the same tax exemptions. However, such deposits must be converted to an investment within 2 years, or else Short Term Capital Gains apply.