Reduction in 54EC Bond coupon rate on cards: Invest now to get higher return while saving LTCG tax

By: |
June 23, 2020 8:46 PM

The 54EC bonds are not only AAA rated, but are backed by the government also, hence the risk factor associated with buying 54EC bonds is mitigated.

long-term capital gains, LTCG, 54EC Bonds, Capital Gain Bonds, capital gain tax, REC Bonds, NHAI Bonds, PFC Bonds, IRFC Bonds, AAA rated bonds, taxable bond, income tax, wealth tax, indexation benefitsIt’s better to invest in 54EC Bonds before June 30, 2020 to earn a better return.

The long-term capital gains (LTCG) on sale of property and other capital assets are taxable – mostly after indexation – but may be saved through some specific ways. One of the best ways to save tax is through investments in 54EC Bonds, which is commonly known as Capital Gain Bonds as tax deduction is available under section 54EC of the Income Tax Act.

The eligible bonds under Section 54EC – that specifically meant for investors earning long-term capital gains and would like tax exemption on these gains – are the bonds offered by REC (Rural Electrification Corporation Ltd), NHAI (National Highways Authority of India), PFC (Power Finance Corporation Ltd) and IRFC (Indian Railways Finance Corporation Limited).

The 54EC bonds are not only AAA rated, but are backed by the government also, hence the risk factor associated with buying 54EC bonds is mitigated.

According to communications from various financial intermediaries, however, the return 54EC Bonds would fall soon as the coupon rate on these bonds is expected to cut from 5.75 per cent to 5 per cent from July 1, 2020.

So, in case you have sold a capital asset, it’s better to invest in 54EC Bonds before June 30, 2020 to earn a better return, while you save taxes on LTCG. While you may invest on the last date through demat accounts, but to ensure that the fund invested gets credited in respective issuer’s account by June 30, 2020, avoid submission of cheque after June 26, 2020 or opt for RTGS only in absence of demat account.

However, you have to keep in mind that returns on 54EC Bonds are taxable and you can invest maximum Rs 50 lakh in such bonds in a financial year, while the minimum investment in 54EC bonds is 1 bond amounting to Rs 10,000.

Although returns on 54EC Bonds are taxable, no tax is deducted at source (TDS) on interest from 54EC Bonds and wealth tax is exempted.

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