PFC Bonds eligible for claiming Exemption from Long term Capital gains Tax


Any profit arising from the sale of long term capital assets is called as long term capital gain and is chargeable to tax at the rate of 20%. However, you can save this tax if you invest the amount of capital gains in long term specified bonds as notified by the government under section 54EC for a minimum period of 3 years.

Recently the government has given approval to the state owned Power Finance Corporation(PFC) for issuing bonds redeemable after 3 years as eligible for exemption from capital gains tax. But bonds issued on or after 15th June 2017 only and redeemable after 3 years will be considered as eligible for investment to save tax on LTCG.Currently the investment in the bonds of REC and NHAI,redeemable after 3 years is allowed under sec 54EC of the income tax act.However,the maximum investment allowed in such bonds is up to Rs 50 lakhs.

In order to claim exemption from capital gains tax by investing in the bonds of PFC, REC or NHAI under sec 54EC, following conditions must be kept in mind:

  • The bonds should not be transferred or converted into money at any time within a period of 3 years from the date of its acquisition. Otherwise the capital gain so exempted will be chargeable to tax in the year in which such bonds are transferred or converted into money.
  • Any loan or advance taken on the security of such bonds is also not allowed. It is considered as conversion of such bonds into money.
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