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 5 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or advance can be taken on security of such bond within 5 years from date of acquisition else, the benefit would be withdrawn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.
  • The eligible bonds under Section 54 EC are RECL (Rural Electrification Corporation Ltd, NHAI (National Highways Authority of India), PFC (Power Finance Corporation Ltd), IRFC (Indian Railway Finance Corporation).
  • The maximum investment limit amount is Rs. 50 Lakhs.
  • The block period for the investment of these 4 companies is 5 years.
  • 100% risk free investment