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54EC Capital Gain Bonds are a type of investment instrument in India that offer tax exemption on long-term capital gains. These bonds are issued by the government-owned entities, such as Rural Electrification Corporation (REC) and National Highways Authority of India (NHAI).
They are typically used by individuals or Hindu Undivided Families (HUFs) who have earned long-term capital gains from the sale of a property, land or any other asset and want to avoid paying capital gains tax on the same.
Investing in these bonds not only offers tax benefits but also provides a fixed return on investment for the entire tenure. These bonds are usually considered a safe investment option, backed by the government, making them a popular choice among investors looking to save on taxes and generate stable returns.
The benefits of 54EC Capital Gain Bonds in India are as follows:
One of the main benefits of investing in 54EC Capital Gain Bonds is that it offers tax exemption on long-term capital gains.
The bonds provide a fixed return on investment, which makes it a safe and reliable investment option.
54EC Capital Gain Bonds are issued by government-owned entities, which makes them a safe investment option backed by the government.
These bonds can provide diversification to an investor's portfolio by spreading the investment across different sectors like infrastructure, power, and highways.
Since the interest rate on these bonds is linked to the benchmark interest rate, the returns on these bonds are adjusted automatically to reflect changes in the market interest rates. This means that investors can earn higher returns during periods of high inflation.
Like other government securities, RBI Floating Rate Bonds are considered a low-risk investment option as they are backed by the Government of India. The repayment of the principal and interest is guaranteed by the government.
The interest rate on floating-rate bonds is currently 7.35% (subject to semi-annual reset).
The interest on these bonds is fully taxable. There is no deduction on the principal investment.
These bonds are not listed and traded and you cannot take loans against them. You are effectively locked in for a tenure of seven years.