Capital Gain Bonds

As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax under section 54EC of the Act if:




  • The entire capital gain realized is invested within 6 months of the date of transfer in eligible bonds

  • Such investment is held for 3 years

  • To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond within 3 years from date of acquisition else, the benefit would be withdrawn

  • If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax


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

If you want to know, how to calculate Capital Gain & what are Tax Rates for Capital Gain – Click Here.