Section 54EC Capital Gains Bonds: Save Tax on Property
You sold a property and made a long-term gain. You do not want to buy another house, and you still want to save tax. Section 54EC bonds are built for exactly this. You invest the gain in special government-backed bonds and skip the tax on that amount. Here is how these bonds work, the current rate, and the limits you must respect.
Quick summary
- Section 54EC lets you save long-term capital gains tax on land or building by investing in notified bonds.
- Issuers: REC, PFC, IRFC and HUDCO. All are public sector, AAA-rated.
- Interest rate is 5.25% per year (as of 2026), paid annually. It is not tax-free.
- Maximum investment is Rs 50 lakh, counted across the sale year and the next year.
- Lock-in is 5 years. You must invest within 6 months of the sale.
What Section 54EC covers
This exemption is only for gains from selling land or a building, or both. It is a long-term exemption, so the property must be held over 24 months. You put the gain into the bonds, and that gain is exempt from tax. Unlike Sections 54 and 54F, you do not need to buy a house. That is why 54EC is popular with people who want to exit real estate but keep the tax saving.
Who issues these bonds
Only a few government companies are allowed to issue 54EC bonds.
| Issuer | Full name |
|---|---|
| REC | Rural Electrification Corporation |
| PFC | Power Finance Corporation |
| IRFC | Indian Railway Finance Corporation |
| HUDCO | Housing and Urban Development Corporation |
All are rated AAA. They are not linked to the stock market, so the value does not move up and down. You get your money back at par when the 5 years end.
The key numbers
| Feature | Detail |
|---|---|
| Interest rate | 5.25% per year (2026), paid annually |
| Maximum investment | Rs 50 lakh per person |
| Time to invest | Within 6 months of the sale |
| Lock-in | 5 years |
| Face value | Rs 10,000 per bond |
| Safety | AAA-rated, government-backed |
The Rs 50 lakh limit explained
The cap is Rs 50 lakh, but there is a twist. The limit applies across the financial year of the sale and the next financial year together. So you cannot split a large gain to invest Rs 50 lakh this year and another Rs 50 lakh next year for the same sale. The total stays Rs 50 lakh.
If your gain is above Rs 50 lakh, only Rs 50 lakh gets the 54EC exemption. For the rest, you may use Section 54F, or pay the tax. Our guide on how to save capital gains tax on property shows how to combine these tools.
The 6-month rule
You must invest within 6 months from the date of transfer. Miss this window and the exemption is gone. Plan early. Many sellers keep the bond application ready before registration so they can invest quickly after the money comes in.
Interest is taxable
The 5.25% interest is not tax-free. It is added to your income and taxed at your slab rate. There is no TDS on 54EC bond interest for residents, but you must still report it. The capital gain itself is what stays exempt, not the interest.
54EC vs 54F: which to choose
| Point | 54EC bonds | 54F house |
|---|---|---|
| Where money goes | Government bonds | A residential house |
| Lock-in | 5 years | 3 years on the house |
| Return | 5.25% interest | Rent or price growth |
| Limit | Rs 50 lakh | Rs 10 crore |
| Best for | Small gains, no wish to buy property | Larger gains, want to own a house |
How to buy 54EC bonds
- Choose the issuer (REC, PFC, IRFC or HUDCO).
- Fill the application online on the issuer or bond portal, or through your bank.
- Give PAN, address, bank and demat details. Bonds can be held in demat or physical form.
- Pay by cheque or transfer within 6 months of the sale.
- Keep the allotment letter as proof for your return.
Frequently asked questions
What is the interest rate on 54EC bonds now?
As of 2026, all four issuers pay 5.25% per year. The rate can change for new issues, so check before you apply.
What is the maximum I can invest?
Rs 50 lakh per person, counted across the sale year and the next year together for the same gain.
Is the interest tax-free?
No. Only the capital gain you invest is exempt. The interest is taxed at your slab rate.
What is the lock-in period?
5 years. You cannot sell, transfer or pledge the bonds during this time. If you do, the exemption is reversed.
Which gains qualify for 54EC?
Only long-term gains from selling land or a building. Gains from shares or other assets do not qualify.
Can I invest after 6 months?
No. The 6-month window from the date of transfer is strict. Investing late loses the exemption.
Are these bonds safe?
They are AAA-rated and backed by government companies. They are not market-linked, so the value stays stable and is repaid at par.
Can I take a loan against 54EC bonds?
No. These bonds cannot be pledged or used as security during the lock-in. Doing so breaks the exemption.
Can NRIs invest in 54EC bonds?
Yes, NRIs can invest to save tax on Indian property gains. See NRI selling property in India for the wider process.
What happens after 5 years?
The bonds mature and the face value is repaid to your bank account. There is no automatic renewal.
Do I get TDS deducted on the interest?
For resident investors, there is generally no TDS on 54EC bond interest. You still report and pay tax on it in your return.
54EC bonds are a clean way to save tax on a property gain without buying another house. Just watch the Rs 50 lakh cap and the 6-month clock. If your gain is larger, compare a house purchase using our capital gains saving guide.
