Capital gain bonds are specific investment instruments that help investors save taxes on long-term capital gains arising from the sale of certain assets. Here’s what investors need to understand about them:
Basic Concept
Capital gain bonds (also known as Section 54EC bonds) allow investors to claim exemption from long-term capital gains tax by investing in these specific bonds within six months of selling the asset.
Key Features
Tax Exemption: Investment in these bonds provides tax exemption under Section 54EC of the Income Tax Act
Eligible Capital Gains: Applicable for long-term capital gains from sale of land or building/house property
Investment Limit: Maximum investment capped at ₹50 lakhs per financial year
Lock-in Period: 5 years (cannot be sold, transferred, or used as collateral during this period)
Interest Rate: Generally 5-6% per annum (paid annually)
Interest Taxation: Interest earned is fully taxable as per the investor's income tax slab
Minimum Investment: Usually ₹10,000 with additional investments in multiples of ₹10,000
