Section 54EC Bonds 2026: How to Save Capital Gains Tax on Property Without Buying Another House

You have sold a flat or a plot, the long-term capital gain is sizeable, and you have no plans to buy another house. Sections 54 and 54F are therefore out. The one route left to legally avoid the tax is Section 54EC (now Section 85 of the Income-tax Act, 2025) — park up to ₹50 lakh of the gain in specified government-company bonds within six months, and that portion of the gain is exempt. The catch is a five-year lock-in at a coupon that is lower than most FDs, which is why the maths deserves a closer look before you commit.

Who Can Use Section 54EC

Since April 1, 2018, Section 54EC applies only to long-term capital gains from the transfer of land, a building, or both. Gains from shares, mutual funds, gold, or other assets do not qualify. The property must have been held for more than 24 months to count as long-term. Any taxpayer can claim it — individuals, HUFs, firms, and companies — and unlike Section 54, there is no requirement that the property sold was residential. Numbering: for transfers in FY 2025-26 the rule is Section 54EC of the 1961 Act; for transfers from April 1, 2026 it is Section 85 of the 2025 Act, which keeps the six-month window, the ₹50 lakh cap (across the year of transfer and the next tax year) and the five-year lock-in. Sections 54 and 54F are Sections 82 and 86.

The Income-tax Act, 2025, which governs transfers from April 1, 2026, carries this exemption forward under renumbered provisions with the same core conditions. A sale in FY 2025-26 is claimed in the ITR for AY 2026-27; a sale in FY 2026-27 falls under the new Act's tax year framework.

The Core Rules

Six Months Means Six Months

The deadline runs from the date of transfer — usually the sale deed registration date — not the date you receive the money. There is no option to park the gain in a Capital Gains Account Scheme and buy 54EC bonds later; CGAS extends deadlines for Sections 54 and 54F, not 54EC. Issuers take several weeks to allot bonds after receiving your application and money, so apply well before the last month to avoid a dispute over whether your investment date falls inside the window.

What Breaks the Exemption

If you transfer the bonds, convert them to money, or take a loan or advance against them at any point during the five-year lock-in, the amount exempted is treated as long-term capital gain in the year that happens. Premature redemption is not offered by the issuers in the normal course, so in practice this money is locked for the full five years. You also cannot claim a Section 80C deduction (Section 123 of the 2025 Act) on the same investment; Section 85(3) to (5) of the 2025 Act carry the same lock-in, loan and deduction rules.

Is It Worth It? A Worked Example

Suppose you sold a plot in 2026 and your long-term capital gain is ₹50 lakh, taxed at 12.5% plus 4% cess — about ₹6.5 lakh, ignoring surcharge. You are in the 30% slab. Compare investing the full ₹50 lakh in 54EC bonds against paying the tax and putting the balance in a 5-year bank FD at 7%.

The bonds come out roughly ₹4 lakh ahead, because the tax you avoid upfront keeps an extra ₹6.5 lakh earning for five years. The gap narrows if you are in a lower slab, where the FD's post-tax return is higher, or if you would otherwise invest in something with better long-term returns than a fixed deposit. It widens once surcharge applies to a large gain.

Combining 54EC With Sections 54 and 54F

You don't have to choose just one route. If you sold a house and are buying a cheaper one, you can claim Section 54 (now Section 82) on the amount reinvested in the new house and cover the remaining gain with 54EC bonds, up to ₹50 lakh. Each rupee of gain can be exempted only once. Heirs selling an inherited property can use 54EC the same way, since the holding period includes the previous owner's.

How to Invest

1. Download the application form from the issuer's website or get it from a designated bank branch or broker. Several brokers also accept 54EC applications online.
2. Pay by cheque, RTGS, or NEFT from your own account; keep the payment proof, since the investment date matters.
3. Choose demat or physical certificate form. Demat makes the holding easier to track and report.
4. In your ITR, report the sale in the capital gains schedule and claim the 54EC exemption with the investment date and amount.
5. Report the annual interest under 'Income from Other Sources' every year until maturity.