Sold a property and faced with capital gains? Look at REC Capital Gains Tax Exemption Bonds-Series-XVI

In simple words, if you and your spouse sell a house and made a long-term capital gain of, say, Rs 1 crore that was held jointly by the two of you, then each of you can invest Rs 50 lakh in REC bonds and claim a capital gains exemption up to that amount.

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These bonds are only meant to save your capital gains tax. You cannot use these bonds for general investments; for those, there are better-yielding investments.

Lock-in These bonds come with a lock-in period of five years from the date of allotment and are non-transferable. You cannot even sell them on stock exchanges, because they aren’t listed. Premature redemption is not permitted under any circumstances. However, in case of death of the investor, if there are a joint holder, the bonds can be transferred to the second or third holder. In the absence of joint holders, bonds can be transferred in the name of the nominee.

Since these bonds are meant for a specific purpose (reinvesting capital gains), they are automatically redeemed after their tenure of five years. You don’t even need to surrender your bond certificate. Interest or redemption proceeds are automatically credited in the registered bank account of the investor.

Interest rate REC 54EC bonds offer an interest rate of 5 percent per annum, payable annually, on June 30 each year, until the date of redemption. Interest earned from 54EC bonds is taxable in the hand of the investor as per the applicable slab rate; however, no tax is deducted at source on interest.

Ratings All 54EC bonds carry the highest rating, a AAA rating. Given that these bonds are backed by the government, the risks of interest defaults and capital repayment are largely protected against.

REC has been assigned the highest credit rating for long-term borrowing by domestic credit agencies India Ratings, CRISIL, ICRA and CARE. On an international basis, REC has been given long-term borrowing ratings from Fitch and Moody's that are on a par with sovereign ratings for India. These ratings indicate the likelihood of timely payment of the obligations. For instance; CRISIL has assigned a CRISIL AAA/Stable (pronounced as CRISIL triple A rating with stable outlook) rating to the REC capital gains bonds. Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.