“Synopsis”
When NRIs sell property in India, the resulting long-term capital gains can attract a hefty tax bill. Thankfully, Section 54EC of the Income Tax Act provides an effective way to save capital gains tax by reinvesting in specific capital gain bonds. This blog outlines the eligibility, features, and process for NRIs to invest in 54EC bonds, and how they help avoid capital gains tax legally.
1. What Are 54EC Bonds?
Section 54EC bonds are capital gains tax exemption bonds issued by government-approved entities like:
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Rural Electrification Corporation (REC)
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National Highways Authority of India (NHAI)
These bonds allow you to reinvest capital gains (not full sale proceeds) from the sale of long-term assets—typically real estate—into these instruments, to claim tax exemption under Section 54EC.
To avail the benefit, you must invest within 6 months of the property sale.
2. Are NRIs Eligible to Invest in 54EC Bonds?
Yes. Non-Resident Indians (NRIs) can invest in 54EC bonds if:
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The capital gain was earned through the sale of immovable property in India
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The investment is made in Indian Rupees
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The funds are routed through an NRO account
Note: 54EC bonds are non-repatriable, meaning the invested amount and the interest earned remain in India.
3. Tax Benefit on Capital Gains for NRIs
Section 54EC offers complete or partial exemption from long-term capital gains tax, depending on how much of the gain is reinvested in bonds.
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If full capital gain is reinvested (up to ₹50 lakh limit), then no tax is payable on it.
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If partial capital gain is invested, exemption is given proportionately.
For example, if your capital gain from a property sale is ₹40 lakh and you invest ₹40 lakh in 54EC bonds, then the entire capital gain is exempt from tax.
4. Key Features of 54EC Bonds (FY 2025-26)
Here are the essential features NRIs should know before investing:
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Interest Rate: Currently 5% per annum (subject to change)
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Tenure: 5 years lock-in period
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Maximum Investment: ₹50 lakhs per financial year
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Taxation on Interest: Fully taxable in India (TDS applies)
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Transferability: Non-transferable and non-tradable
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Repatriation: Not permitted. Funds remain in NRO account
This makes 54EC bonds a conservative investment option meant mainly for tax saving, not high returns.
5. How Can NRIs Invest in 54EC Bonds?
Step-by-step process for NRIs:
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Sell the property and calculate the long-term capital gains.
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Ensure you have a functioning NRO account.
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Visit the official website of NHAI/REC or contact authorized distributors.
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Complete the KYC documentation (PAN, passport, address proof, etc.).
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Make the investment within 6 months from the date of property transfer.
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Receive the bonds either in physical or demat form.
Delay in investment may lead to loss of exemption, so act promptly.
6. Repatriation Rules for 54EC Bond Investments
NRIs should be aware of FEMA and tax rules on repatriation:
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The principal amount (invested in bonds) is non-repatriable.
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The interest is taxable and credited to the NRO account.
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Interest can be repatriated after paying applicable Indian taxes.
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Use a Tax Residency Certificate (TRC) and Form 10F to avoid double taxation and claim DTAA benefits, if applicable.
Conclusion
For NRIs planning to sell property in India, Section 54EC bonds are an effective tool to legally save on long-term capital gains tax. While returns are modest and repatriation is restricted, the safety and tax benefits make them a smart choice for compliant tax planning. Investing within the 6-month deadline is crucial, and all investments must be routed via NRO accounts with proper documentation.
If you’re looking for a low-risk, tax-saving option after a property sale, 54EC bonds might just be the answer.
