When an asset such as land or a building is sold after being held for more than two years, the resulting profit is known as a long-term capital gain. To avoid paying tax on this gain, you can invest it in specific bonds within six months of the sale of the asset. One effective option is to invest in 54EC bonds, which are also known as capital gains bonds. One of the bonds under Section 54EC are REC bonds (Rural Electrification Corporation Bonds). They are debt instruments issued by the Rural Electrification Corporation (REC) of India to finance rural electrification projects.
What are Capital Gains Bonds?
Capital gains bonds offer taxpayers a means to invest the long-term capital gains that they have earned from selling a long-term capital asset. This investment can result in tax savings on the long-term capital gains while earning interest on the investment in these bonds. To provide relief to taxpayers on capital gains or profits earned, the Income Tax Act includes several provisions.
One such provision is Section 54EC, which offers relief to taxpayers on capital gains, provided that the profits are invested in specified bonds. Bonds issued by NHAI, REC, PFC, and IRFC are among those specified for this purpose. These bonds are known as capital gain bonds and are fixed-income instruments. As they are backed by the government, they carry a nominal risk for investors who choose to purchase them.
Schedule a call with an investment expert to get complete help regarding investment in 54EC Bonds in India.
About REC Bonds
Established in 1969, Rural Electrification Corporation Ltd (REC) plays a vital role in the power sector by providing financial aid to various segments of the power industry. As a NAVRATNA public sector company under the Ministry of Power, REC offers loan assistance to state electricity boards and state power utilities for investment in rural electrification schemes. With its corporate office situated in New Delhi and 20 branch units located in different states, REC is well positioned to provide support for the development of rural electrification. REC Limited funds their business with market borrowings of various maturities, by issuing bonds or availing term loans apart from foreign borrowings.
Why Should One Choose REC Bonds?
Given below are some of the benefits of investing in REC Bonds:
- Investing in Rural Electrification Corporation bonds online is safe and secure, since these are AAA-rated 54EC bonds which come with minimal risk.
- While the interest on these bonds is taxable, no TDS deduction is applicable, and they are exempt from wealth tax as well.
- Investors should note that REC bonds have a lock-in period of five years and are non-transferrable.
- The interest rate for REC bonds is 5.25%, and it is paid annually.
- Being government-backed, the risk associated with REC tax-free bonds is low.
Features of REC Bonds
Things to remember when investing in Rural Electrification Corporation (REC) bonds:
- Investors can purchase a minimum of 2 REC bonds, with an investment of Rs.10,000, and a maximum of Rs. 50,00,000 during a financial year.
- If an investor does not have a demat account, a physical bond certificate will be issued, which is similar to a fixed deposit.
- REC bondholders are entitled to receive an annual interest rate of 5.25% on 30th June, which continues until redemption. The remaining balance, along with redemption proceeds, will be paid to the investor upon the maturity of the REC bonds.
- There is a 5 years lock-in period. Premature exit from the REC bonds is not allowed.
REC Bonds Interest Rates
REC Bonds offer 5.25% interest per annum, payable annually.
How to Apply for REC Bonds?
Visit the official website of the REC and complete the following steps to apply for REC Bonds online:
- Click on ‘Process Flow for Submitting Application Form Through Online Mode(685 KB)’ link under ‘54 EC Capital Gain Tax Exemption’ section.
- Select the ‘Submit Application Form Online’ option.
- After selecting the online mode option, select ‘Fill a New Form Online’.
- REC 54EC Bonds Online Application Entry Form will appear at your screen.
- Once you enter the first holder name, press ‘TAB’ or ‘ENTER’ for enabling the PAN Number field.
- Submit the filled application form.
- Then download the filled application form by clicking on the button ‘CLICK HERE’.
- After downloading the Form and duly filling it, scan the signed application form along with KYC Documents.
- Then select the option ‘Upload Application/KYC Documents’ from the window.
- Fill in the necessary details and an OTP will get generated.
- After entering the valid OTP, a window will open. Upload all the required documents.
- Click on the button ‘SUBMIT’.
- Then, click on the Proceed to Payment option.
- A payment gateway window will open. You can choose from the given banks to make a payment.
- After opting the bank, a Net Banking window will open for making the payment.
- Once the payment is done, you will receive an acknowledgement for the same on registered email ID.
REC Bonds Status
For checking your REC bonds status, you need to:
- Click on ‘Check Status of REC 54EC Bond Application’ under ‘54 EC Capital Gain Tax Exemption’ section.
- A query window will open.
- Fill in some basic details like:
- Application number
- First Applicant’s PAN number
- First Applicant’s Name
- Folio No./DPID Client ID
- Click on the ‘Show’ button.
- Once this is done, you will see your REC bonds application status.
What is Section 54EC?
Section 54EC of Income Tax Act stipulates that long-term capital gains resulting from the transfer of long-term capital assets will be exempted from tax if they are invested in capital gains bonds, provided certain conditions are met:
- The asset being transferred must be a long-term capital asset, such as land, building, or both.
- The capital gains must be invested within 6 months from the date of the asset transfer.
- The investment must be made in specified capital gain bonds issued by Rural Electrification Corporation (REC), National Highway Authority of India (NHAI), Power Finance Corporation Limited (PFC), or Indian Railway Finance Corporation Limited (IRFC).
- The maximum investment limit under this section is Rs. 50 lakhs. In other words, the investment amount cannot exceed Rs. 50 lakhs.
NRI Investment in Bonds is a very popular and rewarding opportunity. In addition, capital bonds offer dual benefits of wealth creation and tax saving. If you have any doubts or queries and want specialized advice from experts at SBNRI, contact us using the button below. Also visit our blog and Youtube Channel for more details.
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A- REC bonds are issued for a lock-in period of 5 years and are non-transferable at any point of time.
You can apply for REC Bonds offline as well as online.
The REC Bonds cannot be offered as a security for any loan or advance.
The interest rate for REC bonds is 5.25%, and it is paid annually. However, interest rates are subject to revision from time to time.