How to Buy Capital Gain Bonds Online?

Capital gain bonds or 54EC bonds are specialised investment instruments offered by some selected institutions in India. Investors can avail a tax-saving opportunity by investing their money in these bonds after realising long-term capital gains from the transfer of capital assets like land, buildings or both.

In this guide, let us find out how to buy capital gains bonds online. In addition, we will walk through who is eligible to invest in these bonds and the subsequent benefits of choosing them as part of your investment portfolio.

How to Buy the Best Capital Gain Bonds Online?

Here are some key information you need to be aware of if you are interested in investing in capital gain bonds:

Investment Procedure

Consider approaching a financial advisor or a bank to invest in capital gain bonds provided by IRFC, PEC, NHAI, or REC. You can also use several stock brokerage platforms that collaborate with the above-mentioned bond issuers to buy 54EC bonds. 

List of Documents Needed

You have to submit certain KYC documents as specified by the particular bond provider. This includes your identity proof documents like an Aadhaar card, PAN card, passport, etc., and also address documents like your resident’s electricity bill. 

Along with the above documents, you will be asked to produce your bank account details and additional documents that seem relevant for investing in capital gain bonds. 

Note: As the primary agenda behind investing in capital gain bonds surrounds saving tax, you should compare them with other similar opportunities like Public Provident Fund (PPF) or Equity-Linked Savings Schemes (ELSS) before investing. 

Who Is Eligible to Invest in Capital Gains Bonds?

To invest in capital gains bonds, you need to fall under either of the two following categories:

• Individual investors who have transferred the ownership of their property and collected capital gains through that transaction
• Hindu Undivided Families (HUFs) can also make capital gains bond investments through their head of the family or Karta

What Are the Key Features of 54EC Bonds?

While purchasing capital gains bonds, it can be advantageous if you know the following features: 

Investment Limit

You can start investing with ₹20,000 (approximately the cost of 2 bond units). Additionally, your maximum investment can be up to ₹50 lakh, i.e., 500 bonds in a single financial year.

Interest Rates

At present, capital gains bonds offer a coupon rate of 5.25% p.a. Although no TDS is charged on 54EC bond returns, you have to pay income tax on this amount as it gets added to your annual income. 

Tenure

Capital gains bonds come with a maturity period of 5 years from the date they were issued.

Lock-in Period

Your 54EC investments stay locked in for 5 years from the date you buy bond units. After that, your funds are automatically redeemed, saving you the hassle of paperwork and tedious processes. 

Time Limit to Invest

If you wish to invest in capital gains bonds, you should purchase some units within 6 months of a capital asset sale. Otherwise, you will not be rewarded with tax exemption benefits. 

Exemption

Only profits from selling residential and commercial land and buildings qualify for tax exemption. Additionally, such assets must be held for at least 24 months before selling to enjoy this benefit. 

Why Should You Invest in Capital Gains Bonds?

Here are a few good reasons to invest in capital gains bonds:

Capital Gains Tax Deferral

Among the foremost benefits of investing in capital gains bonds is the deferral of capital gains tax payments. After selling capital assets such as property or stocks, you can invest in these bonds to delay your income tax liabilities. This is a great strategy for efficient cash flow management.

Stable Returns

Capital gains bonds offer a fixed coupon rate and are reputed to offer payouts at regular intervals. Although the return rates are not that high, yet they amount to a significant amount when combined with your other savings accounts. 

Together, the overall returns are highly competitive when compared to other market instruments. Moreover, a bond’s predictability makes it ideal for risk-averse investors who are looking for proven ways to balance their investment portfolio. 

Long-term Investment Option

54EC bonds are highly recommended for long-term investment. If you are someone targeting to reduce your taxable earnings and are ready to stay invested for the long term, then capital gains bonds over extensive periods can be a lucrative option. 

Low Risk

Compared to other bond types, these carry a very low risk of default. Capital gain bonds are issued by government bodies. Additionally, they exhibit ‘AAA’ credit ratings issued by credible agencies like CARE, ICRA and CRISIL. These aspects collectively attest to the security of the investment from an investor’s standpoint.

Final Word

Capital gain bonds are a valuable proposition for investors who wish to reduce their tax liabilities. Additionally, by investing in these bonds, you can support India’s infrastructural development. However, to get started, you should know how to buy capital gain bonds online. It will help you avoid common errors and manage your investments seamlessly. 

Frequently Asked Questions