If you’ve made a profit from selling property or any long-term asset, chances are you’ve also started worrying about capital gains tax. But here’s the good news—you can reduce or even avoid that tax by choosing a well-known route: Buy Capital Gain Bonds.
These bonds are backed by the government and designed specifically to help you save on taxes while keeping your money safe. Let’s go through how they work and what you need to know before investing.
What are Capital Gain Bonds?
Capital gain bonds are special instruments issued under Section 54EC of the Income Tax Act. They are meant for individuals or entities who have made long-term capital gains by selling land or buildings. Instead of paying tax on those gains, you can reinvest the amount in these bonds and claim exemption.
Currently, bonds issued by REC (Rural Electrification Corporation) and NHAI (National Highways Authority of India) fall under this category. Both are government-backed institutions, making them a trusted choice for anyone looking at bonds investment options with minimal risk.
Why choose these bonds?
These bonds don’t promise sky-high returns. What they do offer is tax relief and peace of mind. You get a fixed interest rate (around 5 to 5.25 percent per annum) for five years and at the end of the tenure, your principal is returned.
For people who are not looking to take risks and want a stable parking place for their capital gains, these bonds tick the right boxes.
How much can you invest?
The maximum you can invest in a financial year is ₹50 lakh. But here’s the catch—you must invest within six months of selling your asset to be eligible for the tax exemption. Miss the window and you lose the benefit.
The bonds come with a five-year lock-in period. During this time, they can’t be sold, transferred or pledged.
How to Buy Capital Gain Bonds
Buying these bonds has become easier thanks to digital platforms and select banks offering online services. Here’s a step-by-step look at how to go about it:
- Choose where to buy: Visit a reliable financial platform or a bank’s official website.
- Check availability: These bonds are not open for subscription all year. Confirm the issue is active.
- Complete KYC: You’ll need your PAN, address proof and bank details.
- Make your payment: Payments can usually be made through internet banking or UPI.
- Get your bonds: Once processed, you’ll receive either a physical bond certificate or the units will reflect in your demat account.
Final Thoughts
The idea behind capital gain bonds is simple—help investors save tax in a low-risk, government-backed way. If you’re looking at long-term safety over short-term growth, this is one of the more effective bonds investment options available.
So if you’ve made a gain on your property or asset sale and want to keep your hard-earned money working for you instead of paying tax, make sure to Buy Capital Gain Bonds within the allowed time. It could be one of the smartest post-sale financial moves you make.
