Section 54EC of the Income Tax Act, 1961, provides tax exemption on long-term capital gains (LTCG) from the sale of land or building if the proceeds are invested in specified bonds (e.g., NHAI, REC, or other government-approved bonds).
1. Eligibility Conditions
✅ Asset Sold: Must be land, building, or both (not applicable to other assets like shares, gold, etc.).
✅ Holding Period: Must be held for >24 months (LTCG applies).
✅ Investment Time Limit: Bonds must be purchased within 6 months from the date of sale.
✅ Maximum Investment Limit: ₹50 lakh per financial year (across all bonds).
2. Exemption Calculation
- Exemption Amount: Lower of
- Capital gain from the sale, or
- Amount invested in bonds (max ₹50L per FY).
Example:
- Sale Price: ₹1.2 Crore
- Indexed Cost: ₹60 Lakh
- Capital Gain: ₹60 Lakh
- Investment in REC Bonds: ₹50 Lakh
- Exemption: ₹50 Lakh (remaining ₹10L taxable at 20%).
3. Key Features of 54EC Bonds
✔ Issuers:
- National Highways Authority of India (NHAI)
- Rural Electrification Corporation (REC)
- Other government-approved institutions(notified by CBDT).
✔ Lock-in Period: 5 years (cannot be sold/withdrawn before maturity).
✔ Interest Rate: 5.25%-6.00% p.a. (taxable as income).
✔ Transferability: Cannot be pledged/sold before maturity.
4. Comparison with Other Exemptions
| ASPECT | SECTION 54EC (BONDS) | SECTION 54 (RESIDENTIAL PROPERTY) | SECTION 54F (ANY ASSET → HOUSE) |
| Asset Sold | Land/building | Residential house | Any capital asset (except house) |
| Reinvestment Option | NHAI/REC bonds | New residential property | One residential property |
| Time Limit | 6 months | 1 year before / 2 years after sale | 1 year before / 2 years after sale |
| Max Limit | ₹50 lakh per FY | No limit | No limit |
| Lock-in Period | 5 years | 3 years | 3 years |
5. Compliance & Documentation
✔ Disclose in ITR-2 (under “Exempt Income”).
✔ Proof Required:
- Bond investment certificate(issued by NHAI/REC).
- Sale deedof the property.
- Bank statements(proof of investment).
6. Recent Changes (2024 Budget)
- New Bonds: Government may notify additional bonds(e.g., infrastructure bonds).
- Digital Investment: Can now invest via online platforms (earlier only physical applications).
