Save tax on property sale through Capital Gains Bonds

9 Aug, 2023

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Once you have sold a residential property, it is essential to fulfil your obligations against any Capital Gains taxes to be paid. However, the government allows you to invest in certain tax-saving instruments up to a certain limit.

This is especially useful for people who do not wish to buy another property and may need the cash at a future date for their life stage needs. For example - retired senior citizens who sold their old house and have moved in with their children or relocated elsewhere.

A few government institutions are authorized to sell Capital Gains bonds or 54EC bonds as they are called. Capital Gains Bonds issued by the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) are financial instruments that provide a tax-saving option to investors who have earned capital gains from the sale of property or other assets.

Investors can invest the capital gains amount in these bonds to save on long-term capital gains tax. The Capital Gains Bonds have a lock-in period of five years and offer an interest rate of around 5.25% per annum.

Both PFC and REC bonds have a tenure of five years. REC is offering a coupon rate of 5.25% in the current series, and their bond issue opens on 1 April 2023 and closes on March 31, 2024.

Investors can invest a maximum of Rs. 50 Lakh in these bonds. The interest earned on these bonds is taxable; investors will receive it annually. Upon maturity, the principal amount is returned to the investor, who can reinvest it in these bonds or any other investment option.

Note: These bonds are not listed on any stock exchange, and there is no option to trade them in the secondary market. Therefore, investors should consider their investment horizon and liquidity needs before investing in these bonds.

Also, these bonds are not always freely available. Both PFC and REC open bond applications from time to time, so investors must keep track of the application timelines.

These bonds do not offer any collateral or security and are not listed on any stock exchange, making it difficult to obtain a loan against them.

Additionally, these bonds have a lock-in period of five years, and premature redemption is allowed at the end of the lock-in period.

Therefore, investors should carefully consider their liquidity needs and investment horizon before investing in these bonds. If you require funds urgently, consider exploring the option of paying the Long-Term Capital Gains Tax and retaining the residual amount to fulfil your liquidity needs.

Additionally, investors should consult their financial advisors to determine whether these bonds suit their investment goals and risk profile.


What is the lock-in period for these bonds?
The lock-in period is five years. The current bond application window is open from April 1, 2023, until March 31, 2024.


Can I take a loan against these bonds?
No, taking a loan against Capital Gains Bonds issued by PFC and REC is not possible.

Where can I purchase or invest in these bonds?
Capital Gains Bonds issued by PFC and REC are available for investment through designated branches of authorized banks, including public sector banks and some private sector banks.

One can also apply online. The links to their website are provided at the end of this post.  

The application process is simple, and investors must fill out the application form and submit the necessary documents, such as KYC documents, PAN card, and proof of capital gains.

Can I invest in these bonds anytime? 

It is important to note that these bonds are issued periodically, and their availability may be subject to demand and supply dynamics. Therefore, interested investors should check with their bank or financial advisor to get the latest information on the availability of these bonds and the applicable interest rates.

Additionally, investors should carefully read the terms and conditions of the bond issuance and consult with their financial advisor before investing to ensure that these bonds align with their investment goals and risk profile.

Links to REC and PFC Bonds 

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Note: If you found this article useful, you may also want to read about Sovereign Gold Bonds Scheme.

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