What is section 54EC bonds?
Also called: capital gains bonds, Section 85 bonds, REC bonds, PFC bonds, IRFC bonds
Long-term capital gains from selling land or a building can be parked in 54EC bonds, issued by government-owned companies, to avoid tax on that gain. You can invest up to ₹50 lakh within six months of the sale, with a five-year lock-in; the relief now sits in Section 85 of the Income-tax Act, 2025.
Only a few issuers are notified. REC, Power Finance Corporation and IRFC are the usual ones today, and NHAI issued them in earlier years. The bonds pay a fixed interest rate, which has been 5.25% a year for the last several issues, and the interest is fully taxable. There's no deduction on the principal, just the exemption on the gain you invest.
Unlike the house-reinvestment route under Section 82 (the old 54), these bonds work for any land or building, residential or not, held long-term. That makes them the usual answer for someone selling an inherited plot, a shop or an office who doesn't want to buy another home.
The rules are narrow. The six months run from the date of transfer, which is usually the registration date, not the date the full money arrives. The ₹50 lakh ceiling covers investments made in the year of sale and the next year combined, so a sale in January can't be stretched to ₹1 crore by splitting across two financial years. The lock-in is five years, and you can't pledge, transfer or take a loan against the bonds without losing the exemption.
Before investing, weigh the tax saved against the low post-tax return. On a ₹40 lakh gain at 12.5%, you save ₹5 lakh in tax plus cess. The bonds then earn 5.25% taxable for five years. For most people in the 30% slab, that trade still works.
A seller registers the sale of an inherited plot in Lucknow on 10 March 2026 with a long-term gain of ₹40 lakh. Investing ₹40 lakh in REC 54EC bonds by 9 September 2026 exempts the whole gain, saving ₹5 lakh plus cess.
Investors apply in the last week of the six-month window and miss it because the allotment date, not the cheque date, is taken as the investment date. Apply at least three or four weeks early.
Questions people ask about section 54EC bonds
Can NRIs invest in 54EC bonds?
Yes, on a non-repatriation basis. The same ₹50 lakh cap and five-year lock-in apply.
Can I sell or pledge 54EC bonds before five years?
No. They can't be transferred or redeemed early, and taking a loan against them is treated as a transfer, which brings the exempted gain back into tax that year.