Section 54EC —
Save LTCG Tax with Capital Gains Bonds
How to exempt long-term capital gain on the sale of land or a building by investing in REC, PFC or IRFC 54EC bonds within 6 months — the Rs 50 lakh cap, the 5-year lock-in and how it compares with Section 54 and 54F.
Section 54EC exempts long-term capital gain on the sale of land or a building if you invest the gain in specified capital-gains bonds — REC, PFC or IRFC — within 6 months of the transfer. The exemption is capped at Rs 50 lakh per financial year across all issuers, and the bonds carry a 5-year lock-in. Interest (~5.25%) is fully taxable; only the gain is exempt. From AY 2026-27, 54EC is re-lettered Section 85 of the Income-tax Act, 2025 — the rules are unchanged.
54EC Bonds — REC, PFC & IRFC
54EC capital-gains bonds are AAA-rated, government-backed and issued at par (Rs 10,000 face value). NHAI has stopped fresh 54EC issues — the currently open issuers are REC, PFC and IRFC (HUDCO was notified as an eligible issuer in 2025). Older NHAI bonds already held remain valid.
| Issuer | Full name | Lock-in | Yield (approx.) | Interest taxed? |
|---|---|---|---|---|
| REC | REC Ltd (Rural Electrification Corp.) | 5 years | ~5.25% | Yes · Other Sources |
| PFC | Power Finance Corporation | 5 years | ~5.25% | Yes · Other Sources |
| IRFC | Indian Railway Finance Corp. | 5 years | ~5.25% | Yes · Other Sources |
| NHAI | National Highways Authority of India | 5 years | Closed | No fresh issue |
The Rs 50 lakh cap is the combined limit across all issuers in a financial year, not per issuer. Yields are indicative and set per bond series. Interest is paid annually and is taxable at slab rate.
You must invest within 6 months of the date of transfer (registration/handover), even if that runs into the next financial year. Miss the window and the exemption is lost — there is no extension and no Capital Gains Account Scheme route for 54EC. Because the Rs 50 lakh cap is per financial year, a sale straddling two years (e.g. registration in March) can, with careful timing, allow Rs 50 lakh in each year.
Key Conditions for Section 54EC
Section 54EC is narrow but powerful — it works only for immovable property and only within a tight window.
| Condition | Requirement |
|---|---|
| Asset sold | Long-term land or building (or both) — held more than 24 months |
| Who can claim | Any assessee — individual, HUF, firm, company, etc. |
| Investment window | Within 6 months of the date of transfer |
| Investment cap | Rs 50 lakh per financial year, across all specified bonds |
| Lock-in | 5 years from the date of allotment of bonds |
| Early exit | Bonds cannot be sold, transferred, pledged or borrowed against — doing so revokes the exemption; the gain becomes taxable in that year |
| Amount exempt | Lower of the capital gain or the amount invested (capped at Rs 50 lakh) |
54EC applies only to gains on land or buildings. LTCG on listed shares or equity mutual funds is taxed under Section 112A at 12.5% (with a Rs 1.25 lakh annual exemption) and cannot be sheltered in 54EC bonds. Gold, unlisted shares and other assets are also outside 54EC.
Sold a plot, flat or commercial building? Get your 54EC timing and cap checked.
Talk to a Tax Expert →How Much Tax Does 54EC Save?
Property sold after 23 July 2024 is taxed at 12.5% without indexation (property bought before that date can instead opt for 20% with indexation, whichever is lower). Take a Rs 40 lakh long-term gain:
Without 54EC — pay the tax
With 54EC — invest the gain
The trade-off: 54EC saves the 12.5% tax now, but locks the money for 5 years at ~5.25% (taxable) instead of letting you invest the post-tax proceeds freely. For sellers who do not need liquidity, and especially those in higher slabs, 54EC usually wins.
Use 54EC if
- You sold land or a building and have a large LTCG
- You do not need the money for 5 years
- You want a safe, government-backed shelter
- Your gain is within the Rs 50 lakh cap
Think twice if
- You may need liquidity before 5 years
- Your gain far exceeds Rs 50 lakh (excess stays taxable)
- You can reinvest in a house under Section 54 / 54F instead
- You are chasing higher post-tax returns elsewhere
Not sure whether to use 54EC or buy a house under Section 54?
Get a Capital Gains Plan →Which Capital-Gains Exemption Fits You?
54EC is one of several capital-gains exemptions. If you would rather reinvest in a house than in bonds, look at Section 54 (sale of a house) or Section 54F (sale of any other long-term asset).
| Feature | 54EC | 54 (house) | 54F (any LTCA) |
|---|---|---|---|
| Asset sold | Land / building | Residential house | Any long-term asset (not a house) |
| Reinvest in | Specified bonds | 1 residential house | 1 residential house |
| Who can claim | Any assessee | Individual / HUF | Individual / HUF |
| Time limit | 6 months | 1 yr before / 2 yrs after; 3 yrs to build | Same as Section 54 |
| Cap | Rs 50 lakh | Rs 10 crore ceiling on gain | Rs 10 crore ceiling; proportionate |
| Lock-in | 5 years | 3 years | 3 years |
From AY 2026-27 these map to the Income-tax Act, 2025: 54EC → Section 85, 54 → Section 82, 54F → Section 84. The familiar 54-series numbers stay in common use.
54EC and 54/54F are not mutually exclusive — a seller with a very large gain can combine them: shelter up to Rs 50 lakh in 54EC bonds and route the balance into a house under Section 54F. Joint owners each get their own Rs 50 lakh cap, so a couple co-owning property can shelter up to Rs 1 crore in bonds.
Section 54EC — Frequently Asked Questions
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Sold Property? Save Tax with Section 54EC
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