Is 54 EC Bond a Good Investment Option?
The profit an individual earns from the sale of an immovable asset attracts capital gain income tax, chargeable at 20%. If the person invests this capital gain in 54EC bonds within six months of earning the profit, he can get a tax exemption.
What is a 54EC Bond?
54EC bonds are secured debt instruments that offer a fixed income to the investor along with tax exemptions on land or property sold after at least two years of possession. The investor gets the principal amount at the 54EC investment’s maturity and a pre-decided interest rate throughout the bond’s tenure.
Features of 54EC Bonds
Some essential features of 54EC bonds are as follows:
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54EC bonds give a fixed interest rate return of 5% to the bondholder. The income from this interest is chargeable under the Income Tax Act as per the tax slab applicable to the investor.
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Credit rating agencies rate 54EC bonds as AAA bonds, indicating that these bonds are a highly secure and stable investment.
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Investors can buy 54EC bonds online in Demat form or physical form.
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The per-unit price of 54EC bonds is Rs. 10,000. A single investor can buy a maximum of 500 units of 54EC bonds. It means individual investors can invest between Rs.10,000 and Rs. 50 lakh in 54EC bonds.
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54EC bonds are not listed on the stock exchange, and investors can buy them only from the issuer.
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The 54EC bond duration is five years, and the interest on them is payable annually.
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54EC bondholders cannot transfer the bond in another person’s name during the life of the bond.
Things to know to gain tax exemption under 54EC Bonds
Investors can keep a few things in mind to ensure tax exemptions under 54EC bonds:
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The investor has to invest in 54 EC bonds within six months of selling his property to gain tax exemption.
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The bonds have a lock-in period of five years, and the investor needs to invest for the entire bond tenure to gain tax exemptions.
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The maximum amount of exemption an investor can get under 54EC bonds is Rs. 50 lakh.
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Tax exemption under 54EC bonds is given only on the capital gain earned from the sale of land or buildings and no other assets.
Why 54EC Bonds are a good investment option
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Wealth tax is exempted on 54EC bonds, and TDS is also not deducted from the interest they give.
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54EC bonds are highly rated bonds, and are a safe and secure investment instrument.
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The bonds are backed by the assets of the issuing corporation. It eliminates the chances of default from the issuer’s end.
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In case the issuing corporation files for bankruptcy, bondholders get a preference over other stakeholders during the compensation process.
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Since the bonds offer fixed returns for five years and assured return of the principal amount, the bondholder can plan the reinvestment or expenditure goals from the interest receivable and principal amount accordingly.
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54EC bonds are easy to access, and investors can get them conveniently from online platforms like BondsIndia.
How to calculate tax exemption from investing in 54EC Bonds
Investors can easily calculate the income tax exemption they can get from 54EC bonds. Here is an example to explain it.
Let us assume, an individual bought a property for Rs. 20 lakhs and sold it for Rs. 50 lakhs after three years. The long-term capital gain of the investor in this case is:
The sale price of the property - Purchase price of the property
Rs. 50 lakhs - Rs. 20 lakhs = Rs. 30 lakhs
If the person invests the entire profit of Rs. 30 lakhs in 54EC bonds within six months, he gets a tax temptation on the entire profit.
In another scenario, if he invests Rs. 15 lakhs out of his profit in 54EC bonds within six months, he would get a tax exemption on Rs. 15 lakhs. Capital gain tax will be chargeable on the remaining Rs. 15 lakhs as per his income tax slab.
54EC bonds are a great investment option as they offer tax exemption along with assured returns. Visit Bonds India to invest in 54EC bonds and stay updated on the latest news and information.
