If you promote any capital asset like a home, gold, bonds or debt mutual funds over a protracted interval, you typically make a PROFIT, which is named as Capital good points. That is handled in another way from “curiosity revenue” which you get from mounted deposits and these capital good points are taxed at 20%.
In case of promoting home, these quantities may be fairly massive and for those who reinvest these capital good points, you’ll not must pay any taxes.
Nevertheless at occasions, an investor might not need to put money into one other home and likewise not keen to pay taxes.
54 EC bonds can assist you in saving the capital good points tax.
What are 54 EC Bonds?
54EC bonds (capital good points bonds) are the perfect funding choice by way of which an investor can save long-term capital acquire taxes.
54EC bonds are particularly meant for traders incomes long-term capital good points and would really like tax exemption on these good points. The tax deduction is accessible below part 54EC of the Revenue Tax Act. Nevertheless, 54EC bonds can solely save long run capital good points taxes, and never quick time period capital good points taxes. Take a look at our Capital Good points Tax Calculator
The utmost restrict for investing in 54EC bonds is Rs. 50 Lacs.
As we stated above, a person can put money into these bonds after receiving capital good points from promoting a property, sale of land, or constructing (residential or business).
If you wish to save your capital good points, you’ll have to make your investments in 54 EC bonds inside 6 months from the date of sale of the property or earlier than submitting your revenue tax returns.
Options & Advantages of 54 EC Bonds
- As 54EC bonds are typically AAA rated and therefore it’s the most secure and safe bond as it’s backed by the Authorities of India.
- Curiosity earned on these 54EC bonds is taxable in nature. So whilst you don’t pay any tax on the lump sum you bought after promoting the home or one other property, the curiosity earned from these bonds are taxable.
- No TDS is deducted on curiosity from 54EC bonds and wealth tax is exempted.
- 54EC bonds include a lock-in interval of 5 years and are non-transferable in nature.
- The minimal funding an investor could make in 54EC bonds is 1 bond amounting to Rs. 10,000 and the utmost funding in 54EC bonds is 500 bonds amounting to Rs 50 lakhs in a monetary 12 months.
- The curiosity these bonds supply is at 5.75% which is payable yearly. This isn’t very excessive curiosity, and for those who pay taxes on these, the ultimate put up tax returns might be a lot decrease.
- These bonds may be held in Demat Type and Bodily Type as effectively.
Eligible Bonds below part 54 EC –
So once we say 54 EC bonds, it’s not precisely a product in itself. There are literally 4 sorts of bonds which come below the definition of 54 EC bonds. They’re as follows –
Allow us to see the comparability between REC and NHAI as these are the preferred choices to speculate.
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| BOND | REC Bonds | NHAI Bonds |
| 5.75% | 5.75% | |
| AAA/Secure (CRISIL) | AAA/Secure (CRISIL) | |
| Rs. 10,000 | Rs.10,000 |
| Rs.50 Lakhs in Monetary 12 months | Rs.50 Lakhs in Monetary 12 months |
| 5 yrs | 5 yrs | |
| Yearly | Yearly |
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What for those who don’t put money into 54 EC bonds?
For those who don’t need to put money into these 54 EC bonds and slightly need to put money into different monetary merchandise like a hard and fast deposit, debt mutual fund or fairness mutual funds – then keep in mind that first you’ll have to pay the tax, after which you’ll be able to make investments solely remaining quantity which can fetch larger return in comparison with 54 EC bonds returns.
Nevertheless a fast calculation exhibits that you’re higher off investing in EC bonds, if you’re not trying ahead to put money into fairness mutual funds and are able to take danger. Usually it’s normally a good suggestion to place cash in 54 EC bonds and over 5 yrs, you should have respectable sum of money.
Solely if you’re able to take excessive danger, and usually are not in search of lock in, then you’ll be able to put this cash in fairness mutual funds. Beneath is a comparability between all 4 choices we talked about
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| What? | 54 EC bonds | Mounted Deposit | Debt Mutual Funds | Fairness Mutual Funds |
| Capital Good points Quantity | 50,00,000 | 50,00,000 | 50,00,000 | 50,00,000 |
| Tax to be Paid earlier than investing | NIL | 1000000 | 1000000 | 1000000 |
| Quantity Remaining for Funding | 5000000 | 4000000 | 4000000 | 4000000 |
| Return | 5.75% | 7% | 8.50% | 11% |
| Taxes on Funding | 30.00% | 30% | Approx. 6% (assuming 4% inflation in CII index and 20% capital good points tax) | 10% capital good points tax with out indexation |
| Put up Tax Returns | 4.03% | 4.90% | 7.99% | 9.90% |
| Last Maturity Quantity (Put up Tax) | 6090579 | 5080862 | 5874591 | 6412811 |
| Notes | That is Assured | That is Assured | This isn’t 100% assured, however the closing returns you’ll get might be near assumption most likely | That is certainly depending on the fairness returns, which may be very unstable, so the ultimate outcome may be a lot much less, or a lot larger than the belief |
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Notice that the one choice which has some probabilities of beating the 54 EC bonds returns is fairness, however it’s a must to keep in mind that this isn’t an choice for everybody. Just one who can take proper choices about fairness and is able to take larger danger / excessive reward path ought to get into it.
In any other case, total investing in 54 EC bonds seems like the best choice, however it is going to include strict lock in.
So, this was all that I wished to share on this article. Let me know your queries within the remark part.
