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REC 54EC Capital Gains Tax Exemption Bonds

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REC 54EC Capital Gains Tax Exemption Bonds Series-8 FY13

These bonds should be the last resort to manage tax liability arising from capital gains on house property sale

What Is REC?

 

Rural Electrification Corporation (REC) is a listed public sector company mandated to promote and finance power projects in the country with a special emphasis on rural areas.


What Is 54EC Capital Gains Tax Exemption?


Section 54 of the Income Tax Act taxes capital gains arising from the sale of house property (difference between original cost on which indexation benefit is applied if any and present realised sale price) subject to some exemptions provided in sub-sections. Sub-section EC of Section 54 provides an exemption if the capital gains are invested in specified three-year bonds issued by REC and National Highways Authority of India (NHAI).


FOR WHOM? Individuals who have made profits from selling a house property in the past six months and those who could do so in present financial year. But, they cannot avail of other exemptions (under other sub-sections of Section 54) such as reinvestment of sale proceeds in another house.

 

Features:

 

It is a three year unsecured bonds issue with each bond carrying a face value of Rs 10,000. Maximum application allowed is for 500 bonds (Rs 50,00,000).

bank Subscription is through demand drafts or pay orders payable directly to company or through specified bank branches (see http://www.recindia.nic.in for details). Deemed date of allotment is last day of the month in which the subscription payment is effected to REC. Redemption is three years from allotment. The bonds are not transferable.


Interest Rate:

The REC bonds carry a fixed annual interest rate of 6 per cent, payable annually on June 30.


Tax Benefits:

The amount of capital gains you claim as exempt from tax will be the actual amount you invest in the bonds, the maximum being your total net capital gains or Rs 50,00,000 whichever is lower. The interest you receive on the bonds is, however, taxable as income from other sources.


Credit Rating: AAA by Crisil. LAAA by Icra and AAA by Fitch.


These bonds should be the last resort to manage tax liability arising from capital gains on house property sale because the 6 per cent interest is very low.


A better option is to reinvest the sale proceeds in a house property and seek tax exemption. If you are left with no other option but to use Section 54EC exemption, then NAHI's 54EC bonds issue is the only alternative you have. NHAI's bonds issue carries the same credit rating as REC. But since, REC's objectives carry a rural emphasis, the end-use of your funds could be considered as being nobler.

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