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Investment in Bonds under Section 54EC

Meru Accounting is a leading accounting firm in India and the main player for outsourcing work in India. So, here, we are explaining Investment in Bonds under Section 54EC.

  1. What is the section 54EC
  2. What is the requirement of investment?
  3. Where can you invest
  4. What to do if you want to get more tax benefit.
  5. How much is the time frame of investment

What is Section 54EC?

If you want to save on your tax along with investment benefits, then you should avail benefits given under section 54EC of the Income-tax Act 1961. In 2017’s budget, the former Finance Minister Arun Jaitley has increased the benefits given under section 54EC. This section lets the taxpayers save on tax on any capital benefit or profit accrued through transferring capital assets.

However, there are certain requirements to be eligible for the tax benefit, which is as follows.

    • The asset which is transferred by assesses should be a long-term capital asset and should cause long-term capital gains or profit.
    • The transfer of such a long-term capital asset should have been done post 1st April 2000.
    • The capital gain or profit received by assesses from transferring such long-term asset must be invested in the long-term specified asset only.
    • As per the section 54EC(1), any investment that assesses has made in a financial year, must not be more than Rs 50 lakhs

Where to Invest for the Deduction?

For availing benefits, you can invest in different bonds issued by the following authorized institutions:

    • National Bank of Agriculture and Rural Development (NABARD)
    • Small Industries Development Bank of India (SIDBI)
    • National Highways Authority of India (NHAI)
    • National Housing Bank
    • Rural Electrification Corporation Ltd (REC)

You can redeem all of them after completion of three years.

Investment in Bonds under Section 54EC
Investment in Bonds under Section 54EC

What You Can Invest?

There can be two types of investments.

  • Full Investment:

After fulfilling all the conditions, the assesses deducts the full amount of the capital gains or profits provided the complete amount accrued by him/her, then invested in the specified long-term investment is called full investment.

  • Partial Investment:

After fulfilling all the conditions, if the assesses deduct the only a partial amount of capital gains or profits in the specified long-term asset, then it is the partial investment.

How to Get More Benefits?

There are certain other deductions that you can avail like bonds gained jointly by two individuals, a depreciable asset, instalments, closure of subscription, etc.