54EC Tax Rebate

When you make profit on selling any long term capital asset you are liable to pay income tax on long term capital gains (LTCG). However if the amount is invested in specified bonds you can claim tax exemption on capital gains tax under section 54EC of the Income Tax Act.

Eligibility for 54EC rebate

For claiming exemption on capital gains under section 54 EC capital gains from sale of any long term capital asset should be invested in special Rural Electrification Corporation (REC) or National Highways Authority of India (NHAI) bonds within 6 months of sale. These bonds are usually open for subscription throughout the financial year and are available at authorized bank branches.

If any capital gain amount is not invested it will be added to your taxable income under the head capital gains.

The bonds have a maturity period of 3 years. Section 54EC bonds cannot be transferred or pledged for loan. If they are transferred pledged before 3 years the capital gains tax benefits will be reversed. You would be liable to pay capital gains tax in the year you transfer or pledge the bonds.

Maximum exemption limit under 54EC

Up to Rs 50 lakhs can invested in NHAI or REC bonds for income tax exemption on long term capital gains under section 54EC.

Fintotal comment

Income tax exemption under section 54 EC is available for any capital asset, not just property.

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