REC Bonds

REC Bonds are one of the Section 54EC Capital Gain Bonds, issued by REC Limited, a government-backed, Maharatna PSU under the Ministry of Power. These bonds are primarily used for the reinvestment of long-term capital gains to claim tax exemption under Section 54EC of the Income Tax Act.

Key Features:

• AAA-rated, backed by the Government of India

• Lock-in period: 5 years, non-transferable

• Interest: ~5%-5.25% p.a., paid annually

• Investment range: Minimum ₹10,000; maximum ₹50 lakh in a financial year

REC Bonds qualify for tax exemption under Section 54EC of the Income Tax Act. If you have earned long-term capital gains (LTCG) from the sale of assets like property, you can reinvest the proceeds in REC Bonds within six months to claim tax exemption up to a limit of ₹50 lakh.

• Tax Savings: Full exemption on LTCG reinvested up to ₹50 lakh

• High Safety: AAA-rated and backed by the Government of India

• Steady Returns: Fixed annual interest in the range of 5%-5.25%

• Lock-in Period: Mandatory 5-year holding; no premature redemption allowed

• Non-transferable: Cannot be traded or sold in the secondary market

• Tax on Interest: Interest income is taxable as per your income slab, with no TDS benefit

• Complete LTCG Exemption: After 5 years lock-in period, the principal amount regained is exempt from tax

Best suited for:

• Investors with long-term capital gains seeking tax-efficient reinvestment option

• Those preferring safe, government-backed fixed-income instruments

Not ideal for:

• Investors needing high liquidity or short-term gains

• Those seeking returns significantly above ~5% p.a.