54EC bonds for NRIs: save capital gains tax on property sale
NRIs who sell Indian property held for more than 24 months can invest the long-term capital gains — up to ₹50 lakh — in Section 54EC bonds (REC, NHAI, PFC, IRFC) within 6 months to claim a full exemption. The bonds have a 5-year lock-in and cannot be pledged or transferred.
Invest LTCG in 54EC bonds within 6 months of sale
After selling Indian property held 24+ months, invest the long-term capital gains (up to ₹50 lakh) in Section 54EC bonds within 6 months of the sale date. The bonds must be redeemable after 5 years and cannot be sold or pledged. The full invested amount is exempt from LTCG tax.
Key points
- Up to ₹50 lakh exempt — Maximum ₹50 lakh can be invested in 54EC bonds in a financial year to claim LTCG exemption — regardless of actual gains.
- 6-month investment window — The investment must be made within 6 months of the property sale date — not 6 months from the financial year end.
- 5-year mandatory lock-in — 54EC bonds have a 5-year lock-in — the bonds cannot be sold, transferred or pledged during this period.
How 54EC exemption works for NRIs
When an NRI sells Indian land, building or residential property held for more than 24 months, the gain qualifies as LTCG taxable at 12.5% (without indexation, post-FY 2024-25).
Investing the LTCG amount — up to ₹50 lakh — in 54EC bonds within 6 months eliminates the LTCG tax liability on the invested amount. If only part of the gain is invested, only that proportion is exempt.
After 5 years, the bonds mature. The maturity proceeds can be repatriated from the NRO account (within the USD 1 million annual limit) after paying applicable taxes and filing Form 15CA/15CB.
Which bonds qualify and how to invest
Eligible bonds (as of the review date): REC (Rural Electrification Corporation), NHAI (National Highways Authority of India), PFC (Power Finance Corporation), IRFC (Indian Railway Finance Corporation).
Purchase: Apply directly from each issuer's website or through your NRO bank account. The bonds are issued in physical or demat form.
Important: confirm with your CA that the chosen bond is still notified under Section 54EC at the time of investment — the government periodically updates the list.
Interest: 54EC bonds pay a fixed annual interest (currently around 5%). This interest is taxable — it is credited to your NRO account and subject to TDS.
Frequently asked questions
Can an NRI invest in 54EC bonds from an NRE account?
54EC bonds must be purchased using the sale proceeds of the Indian property, which are credited to an NRO account. NRE funds cannot be used directly to purchase 54EC bonds.
What if I cannot invest within 6 months?
If the 6-month window falls in the same financial year as the sale, deposit the LTCG in a Capital Gains Account Scheme (CGAS) bank account before the ITR filing deadline. You then have until the end of 3 years to invest from CGAS, though 54EC bonds are limited to 6 months from sale.
Is there an alternative to 54EC bonds?
Yes — Section 54F allows NRIs to invest the entire sale consideration (not just the gain) in a new residential property in India and claim full LTCG exemption. Section 54 allows reinvestment of LTCG from one residential property into another.