Section 54EC Capital Gains Bonds 2026: The 6-Month Window for Property Sellers
Sold land or a building in 2026? Section 54EC lets you exempt long-term capital gains by investing in notified bonds within six months of transfer — but the ₹50 lakh cap, five-year lock-in, and issuer eligibility rules trip up sellers every year. Here is what the section actually requires.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Section 54EC, Income-tax Act, 1961 — Effective: ongoing (amended by Finance Act, 2018 and Finance Act, 2026). Source: CBDT notification. Last reviewed by CA Harun Raaj: September 2026.
If you sold land or a building between April and September 2026, the exemption clock is running. Section 54EC of the Income-tax Act, 1961 lets you exempt long-term capital gains (LTCG) from tax by investing the gains in specified bonds within six months of the date of transfer. Miss the window and the exemption is gone — the Act provides no mechanism for late investment.
What Section 54EC Covers
Section 54EC applies only where the long-term capital asset transferred is land or building (or both), and the gains are reinvested in notified bonds within six months of transfer. Since Finance Act, 2018, the exemption has been restricted to land and building — equity shares, listed securities and other capital assets do not qualify.
Specified Issuers for FY 2026-27
CBDT notifies eligible bond issuers each year. For FY 2026-27, the eligible issuers are:
HUDCO was added to the eligible list under Finance Act, 2026. All four issuers currently offer 54EC bonds at approximately 5.25% per annum; this interest is taxable as income from other sources even though the underlying capital gain is exempt.
Key point: Section 54EC exempts LTCG on land or building only if the gains are invested in notified bonds within six months of transfer, subject to a ₹50 lakh per-financial-year cap.
The ₹50 Lakh Annual Cap
Under the proviso to Section 54EC(1), investment in 54EC bonds is capped at ₹50 lakh in a financial year — a hard statutory ceiling regardless of the size of the capital gain.
Cross-year planning: If the date of transfer falls between 1 October 2025 and 31 March 2026, the six-month window straddles FY 2025-26 and FY 2026-27. In such cases, taxpayers have invested up to ₹50 lakh in each financial year's bonds (total ₹1 crore), provided both investments fall within the six-month period — an approach the Income Tax Appellate Tribunal has generally accepted, though current case law should be confirmed with your CA. For transfers on or after 1 April 2026, only FY 2026-27 bonds apply, and the ₹50 lakh ceiling operates within that single year.
What the Exemption Saves
For FY 2026-27 (AY 2027-28), resident individuals and HUFs selling land or building face the following LTCG rates:
- Assets acquired before 23 July 2024: choose between 12.5% without indexation or 20% with indexation, whichever is more beneficial, decided asset by asset.
- Assets acquired on or after 23 July 2024: 12.5% without indexation, with no indexation option available.
NRIs pay 12.5% without indexation on such gains and get no indexation option for post-23 July 2024 acquisitions; applicable tax treaty provisions should be checked separately.
Without Section 54EC, tax on ₹50 lakh of LTCG could range from roughly ₹6.25 lakh (at 12.5%) to ₹10 lakh (at 20%, before cess). Section 54EC exempts that liability in exchange for locking ₹50 lakh into bonds for five years at 5.25%.
The Five-Year Lock-In
54EC bonds carry a mandatory five-year lock-in from the date of investment. They cannot be transferred, pledged, or encumbered during this period — doing so withdraws the exemption, and the LTCG becomes taxable in the year of such transfer or encumbrance. There is no secondary market for these bonds; at maturity they are redeemed at face value.
Section 54EC Against Other Exemptions
The six-month window under Section 54EC is far tighter than the 24-month window available for reinvestment in residential property under Sections 54 and 54F — but a bond investment can be completed within days, while a property purchase cannot.
Timeline for Apr-Sep 2026 Transfers
The six-month period runs from the date of transfer — determined under Section 2(47) as when possession is handed over and consideration is received — not from the date the sale is registered or consideration actually reaches the seller's account.
Errors That Cost the Exemption
- Investing after the six-month deadline: courts have consistently treated this limit as mandatory, with no condonation.
- Treating the registration date as the transfer date, when Section 2(47) governs which date actually starts the clock.
- Investing in bonds from an issuer not notified for the relevant year — issuer eligibility should be confirmed against the current CBDT notification.
- Assuming the ₹50 lakh cap applies per property sold rather than in aggregate across all 54EC investments made in a financial year.
- Losing track of the original cost of the land or building once the exemption is claimed, which continues to matter for later calculations if the bonds are converted or redeemed.
Points to Discuss With Your CA
- The precise date of transfer under Section 2(47).
- The holding period (over 24 months qualifies land/building as long-term).
- Whether the indexation option is available, based on the acquisition date relative to 23 July 2024.
- Other exemptions that may apply alongside or instead of Section 54EC — Sections 54, 54F, 54B (agricultural land), and 54GB (eligible start-ups, subject to current availability).
- Whether the cross-financial-year straddling opportunity applies to a September–October transfer.
- Credit for TDS deducted by the buyer under Section 194-IA where consideration exceeds ₹50 lakh.
For personalised capital gains tax planning, visit our Capital Gains Tax Planning page.
This article is general information about Section 54EC as of September 2026. It does not constitute personalised tax advice. Applicable rates and provisions may vary based on individual circumstances, residency status, asset type, and date of acquisition.
I'm CA Harun Raaj, Visakhapatnam. If a property sale in 2026 has left you racing the six-month clock, reach out and we'll work through the exemption calculation together.
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See Also
Frequently Asked Questions
Does Section 54EC apply to the sale of shares?
No. Since Finance Act, 2018, the Section 54EC exemption applies only to LTCG arising from the transfer of land or building; equity shares, listed securities, and other capital assets are explicitly excluded.
What is the deadline to invest in 54EC bonds after selling property?
Six months from the date of transfer, as determined under Section 2(47) of the Income-tax Act, 1961. Courts have treated this limit as mandatory, with no provision for late investment.
How much can I invest in 54EC bonds in a financial year?
Up to ₹50 lakh per financial year, as set by the proviso to Section 54EC(1). This cap applies in aggregate across all 54EC investments made in that year, not per property sold.
Can I invest ₹1 crore in 54EC bonds if my sale straddles two financial years?
If the date of transfer falls between 1 October 2025 and 31 March 2026, the six-month window spans FY 2025-26 and FY 2026-27, allowing up to ₹50 lakh in each year's bonds. The Income Tax Appellate Tribunal has generally accepted this approach, but current case law should be confirmed with your CA.
Which bonds qualify for Section 54EC exemption in FY 2026-27?
REC, PFC, IRFC, and HUDCO bonds are the CBDT-notified issuers for FY 2026-27. HUDCO was added to the eligible list under Finance Act, 2026.
What happens if I sell or pledge 54EC bonds before five years?
The exemption is withdrawn and the LTCG becomes taxable in the year the bonds are transferred, pledged, or otherwise encumbered, since Section 54EC carries a mandatory five-year lock-in.
Is the interest earned on 54EC bonds tax-free?
No. The capital gain invested in the bonds is exempt, but interest earned on the bonds — currently around 5.25% per annum — is taxable as income from other sources.
What date counts as the 'date of transfer' for computing the six-month window?
Under Section 2(47), the date of transfer is when possession is handed over and consideration is received, not the date the sale deed is registered. Getting this date wrong can cause a seller to miss the six-month deadline without realising it.
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