Rural Electrification Corp issues 54 EC bonds: Who should invest

Rural Electrification Corporation Ltd (REC) opened its fresh issue of Capital Gain Tax Exemption-54EC Bonds Series-IX for 2013-14. The issue opened on 1 April 2013 and will close on 31 March 2014 and the issue size is Rs 1,000 crore (plus green shoe option). This is a non-transferable, non-negotiable bond with a face value of Rs 10,000.

And, you are permitted to invest only the Long Term Capital Gains (LTCGs), which you've made from selling your property, after holding them for three years. Under the Section 54 EC of the Indian Income Tax act,investing in these bonds help you save LTCGtax of 20 percent applicable on the gains you made.


Investment amounts: You are permitted to make a minimum investment of Rs 10,000, while the maximum amount you are permitted to invest is Rs 50 lakh in a financial year. Since, the face value is Rs 10,000 per bond, you can invest in a maximum of up to 500 bonds.

You will have to hold the bond for three years from the date of allotment.

Tenor: You will have to hold the bond for three years from the date of allotment. This date is the last date of the month in which subscription funds reach the institution's account.

Interest rates: You will earn a coupon rate of 6 percent payable annually. You will be paid the interest on the 30th of June every year. Keep in mind that there is no call or put option, but you will get bullet repayment at the time of maturity.

Rating: The bond comes with a credit rating of CRISIL AAA Stable' by CRISIL and AAA by CARE and AAA (ind) by Fitch Ratings. Keep in mind that REC is a listed public sector enterprise. Hence, it makes it a rather safe investment avenue.

Tax: You get a tax benefit under Section 54 EC, but keep in mind that the interest you earn is taxable. Keep in mind that the post-tax returns for those who are on the highest tax bracket is 4.14 percent. For the lowest tax bracket, the post-tax returns will be 5.38 percent. Those who are in the 20 percent bracket will get a post-tax returns of 4.76 percent. Keep in mind that if the amount you invest in bonds is less than the capital gains realized by you, only proportionate capital gains you invest in these bonds would be exempt from tax. See highlights here.

Where can you buy:You can get more information about the application from here . You can get them from select branches of HDFC Bank, Canara Bank, IDBI Bank, Indusind Bank, ICICI Bank and Axis Bank.

Should you invest:By investing in 54 EC bonds you can save 20 percent tax on LTCG, as well as earn an interest rate of 6 percent annually. Alternately, if you don't invest your LTCG in these bonds and you don't buy another property in the given stipulated time as per IT laws, you will have to pay 20 percent tax on the LTCG amount. We recommend, if you have made LTCG, do get in touch with your financial planner before investing in these bonds.

Just last week NHAI also opened it's fresh issue of these 54 EC bonds (read here)

Updated Date: Dec 21, 2014 02:08 AM

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