• In accordance with section 54 EC of the Income Tax Act, 1961, all categories of tax payers would be eligible to save tax in respect of long term capital gains by making investments in certain Bonds prescribed.
• These bonds are classified as 'long-term specified asset' and are issued by REC, NHAI, PFC and IRFC.
• These bonds are specifically for investors who have made some long term capital gains, and would like to save capital gain taxes on this amount.
• Only long term capital gains are eligible for these bonds though, and short term gains are not covered under section 54EC.
• The interest from these bonds is fully taxable

Condition for Exemption from Tax U/S 54 EC:

• The entire capital gain realized is invested within 6 Months of the date of transfer in eligible bonds
• Such investment is held for 5 Years
• To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be on security of such bond with 3 years from date of acquisition else, the benefit would be withdrawn.
• If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.