Buying a real estate property can make a big hole in your pocket. However, once it has appreciated and produced decent returns, it all seems worth it. Unfortunately, as you get ready to reap the returns, tax police start knocking at the door!

Now, we all know that one can claim an exemption on profits from the sale of a house by reinvesting them in a house within two years from the sale of the old house.

But what if you don’t want to buy another house? In that case, 54EC Bonds are the right answer for you!

What is 54EC Bonds?

Section 54EC bonds also referred to as capital gain bonds, are fixed-income products that offer you capital gains tax exemption under section 54EC.

The property being sold should be a Long Term Capital Asset i.e. the taxpayer should have owned the property for a minimum of 24 months before the sale.

Moreover, you should invest the gains that you have made within six months from the sale of your house.

Also, during the current financial year and the one after, the total amount invested cannot exceed Rs 50 lakh.

How does it work?

Let’s take an example. Suppose you sold your house for a Rs 80 lakh and your final indexation cost comes to Rs 50 lakh. 

Now, indexation is the process of adjusting the cost of the house to inflation. So if you purchased a house for Rs 30 lakh, 10 years back, it could be worth Rs 50 lakh today if you consider inflation.

Now, you won’t have to pay any taxes if you invest Rs 30 lakh (₹80 – ₹50 lakh) of capital gains into 54EC bonds.

Also Read: Indexed bond: A handy license to hedge against inflation?

How to invest in 54EC Bonds?

Here’s how you can invest in 54EC bonds, which aren’t listed on the stock exchange:

1.) Download the bond form (REC, PFC, IRFC) from the official website.
2.) Choose the ‘direct’ option and select the number of forms you need.
3.) Enter the captcha and download the form in ZIP format.
4.) Unzip and print the form.
5.) Fill it out following the instructions provided.
6.) Attach a demand draft or account payee cheque and necessary documents.
Submit the filled form and payment at designated bank branches (Axis, Canara, SBI, HDFC, ICICI, IDBI, IndusInd, Yes Bank).
7.) Alternatively, deposit the amount directly into the collection account through NEFT/RTGS, and fill out the online application form, mentioning the UTR number provided.”

Advantages vs Disadvantages of 54EC Bonds

Note: If bonds are redeemed before the maturity period then the amount invested on which tax exemption was claimed, shall be taxable as long-term capital gain as well.