Capital Gain Bonds Under Section 85 of The Income Tax Act, 2025 (Erstwhile Section 54EC of the Income Tax Act, 1961)

Section 85 bonds, or capital gains bonds, are one of the best ways to save long-term capital gain tax. Section 85 bonds are specifically meant for investors earning long-term capital gains and who would like tax exemption on these gains. Tax deduction is available under Section 85 of the Income Tax Act, 2025 (Erstwhile Section 54EC of the Income Tax Act, 1961).

Section 85 bonds do not allow any tax exemption on short-term capital gains tax. Invest in Section 85 bonds to get the benefits of tax deductions. The maximum limit for investing in 54EC bonds is Rs. 50,00,000.

The eligible bonds under Section 85 are:

Already Applied?

Track your allotment status by clicking on the following links.

List of documents required to invest in capital gain bonds :

Self-attested copy of PAN Card (in case of Joint application, self-attested PAN copy of all the applicants) OR Form 60 (in case the investor does not have PAN).
Cancelled Cheque leaf for payment of interest/redemption through NEFT/RTGS facility.
Other documents as applicable below:

Resident Indian

Any one of the following for address proof:

AADHAAR Card
Passport/Driving License
Identity Card issued by any Government Institution
Copy of the electricity bill or Gas connection showing residential address
Any document or communication issued by any authority of the Central Government, State Government or local bodies showing residential address
Voters Identity card
Ration Card
Bank Passbook with address and latest transactions updated

Instructions to submit Section 85 CGTE Bonds online application form through net banking / debit card

To fill out the application form online, investors should have the following information and documents available in PDF format.

a. email ID

b. Mobile.

c. Self-attested Pan card Proof (PDF only)

d. Self-attested Address Proof (PDF only)

e. Cancelled Cheque for application with physical bond securities

Step 1:

1. Click the “Fill a New Form online” button

2. Fill the application form online and submit

3. SMS will receive on successfully application submitted.

4. Download the duly filled application form.

5. Take a print out and check all the fields and signatures should be done by all applicant(s)

6. Scan the application copy duly signed by all applicant(s) and save as PDF format.

Step 2:

7. Click the “upload Application/KYC documents” button

8. Enter the following application details as submitted online to validate the application form a. Application No. b. Email ID c. Mobile

9. Click “Get OTP” button - to receive an OTP on your email and mobile.

10. Enter OTP received on mobile / email ID and click “Validate“

11. On validation, the application information will be displayed.

Step 3:

12. Upload the following valid PDF documents to proceed for payment

a. Application form duly signed

b. ID proof with self attested

c. Address Proof with self attested

d. Others If any / Cancelled Cheque for Physical Holders

13. On upload of above documents, it will enable the payment gateway “Proceed to Payment” button.

Step 4:

14. Pay thru Netbanking / Debit Card

15. On success/fail of the payment, the acknowledgement will be generated and the same will be sent thru email.

Key Features of Section 85 Bonds

54EC bonds are popular investment instruments, as investing in 54EC bonds allows investors to claim tax deductions on long-term capital gains. 54EC bonds also offer other features.

Safe and Secure: Section 85 bonds are AAA-rated.
Interest: Interest on Section 85 bonds is taxable. No TDS is deducted on interest from Section 85 bonds, and wealth tax is exempted.
Tenure: Section 85 bonds come with a lock-in period of 5 years (effective from April 2018) and are non-transferable.
Investment amount: The minimum investment in Section 85 bonds is 1 bond amounting to Rs 10,000, and the maximum investment in Section 85 bonds is 500 bonds amounting to Rs 50 lakhs in a financial year.
Interest Rate: Section 85 bonds offer a 5.25% rate of interest payable annually.
Non-transferable and non-negotiable bonds
Available in Physical as well as demat form
AAA credit rating by ICRA, CRISIL and India Ratings and Research Private Limited
No TDS, but interest earned is taxed.

Key Benefits of Section 85 Bonds

Individuals as well as members of HUF can make investments in Section 85 bonds.

You should invest in Section 85 bonds within 6 months of transferring a capital asset. Take a look at the benefits of investing in Section 85 bonds.

Bonds offered under Section 85.

With effect from FY 2018-19, the benefit of investing in Section 85 bonds would be available on the sale of land or buildings (residential or commercial). The capital gains Section 85 bonds eligible for tax deductions can be issued only by

» REC (Rural Electrification Corporation Ltd),

» PFC (Power Finance Corporation Ltd) and

» IRFC (Indian Railways Finance Corporation Limited)

» NHAI (National Highways Authority of India). (Closed from 03.09.2022)

Avail the opportunity to invest in Section 85 bonds to gain tax deductions.

The Analysis

According to Section 85 of I.T., 2025, any person (individuals, HUFs, partnership firms, companies, etc.) can avail themselves of an exemption in respect of long-term capital gains (arising from the sale of a long-term capital asset other than equity shares and securities) if the capital gain is invested in capital gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less.

The interest rate offered on these bonds is 5.25% per annum. The exemption is subject to:

• The investment is made within a period of 6 months from the date of transfer of the asset

• Lock-in period: 5 years.

• Bonds sold, transferred or converted into money or any loan or advance taken on the security of such bond within a period of 5 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds

• Maximum investment limit of up to Rs 50 lakhs in a financial year per individual.

• If the amount invested in bonds is less than the capital gains realised, only proportionate capital gains would be exempt from tax.

Those who wish to save taxes on LTCG can invest the amount in capital gains bonds within six months from the date of the arising profit. By investing in a Section 85 capital gains bond, one can save up to Rs 50 lakh in a single financial year. These instruments are not only capital-protected instruments, but they also provide a steady stream of income to you.

Bond offered (under Section 85):

» Power Finance Corporation (PFC) »

Rate of Interest

5.25% p.a. (effective – April 01, 2023)

Tenure

The tenure of the bonds will be 60 months, and the bonds will be automatically matured at the end of the period from the deemed date of allotment.

» Rural Electrification Corporation Ltd (REC) »

Rate of Interest

5.00% p.a. (effective – April 01, 2023)

TAX Exemption under Section 85:

1. Section 85 bonds can be used to save tax only when the capital gain is derived from land or a building or both.

2. It cannot be used to save tax on capital gains arising from the sale of non-equity mutual funds, debentures, gold jewellery or gold ETFs.

3. The maximum investment in these bonds is Rs. 50 lakh only. As the property prices have soared high, this provision does not provide adequate relief for the investor.

» What is the mode of application?

You can apply for the Section 85 bonds offline with physical forms and online via debit card or net banking.

» What are the modes of payment?

The payment can be done through cheque, DD, RTGS or online.

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