NRI investing in section 54EC bonds

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Toseef

Service

26 Points Posted on 07 January 2022

Hi,

I am a NRI (OCI card holder). I recently sold inherited land in India. The sale proceeds are deposited in my NRO account. I want to invest the capital gain from this sale into section 54EC bonds to save on taxes.

My aim is to invest the money into 54EC bonds and then after 5 years of lock-in period (when bond matures), move the principal amount of the bond to my NRE account.

I already have a non-repatriable demat account linked to my NRO account.

If I deposit the section 54EC bond into this demat account, would I be able to move the matured bond money from my NRO account to NRE account after its maturity, since the bond was kept in a 'non-repatriable' demat account all through its lock-in period?

or should I get the bond in physical form rather than depositing it in demat account?

Awaiting your guidance

Replies (6)

Quick Summary

This discussion explores how Non-Resident Indians (NRIs) can invest capital gains from selling inherited property into Section 54EC bonds to save on taxes. A key concern is whether investing in these bonds via a non-repatriable demat account affects the ability to repatriate the principal amount to an NRE account after the 5-year lock-in. The consensus is that while interest is taxed annually, the redemption proceeds can be repatriated to an NRE account after obtaining a tax obligation met certificate from a Chartered Accountant, regardless of whether the bond was held in physical or demat form. Diversifying investments across different eligible companies is also confirmed as permissible.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

212537 Points Posted on 07 January 2022

Either way it will not make any difference.

Interest earned every year will be taxed in the respective ITR.

Redemption proceeds are directly credited to respective NRO account as declared in the application form.

Toseef

Service

26 Points Posted on 07 January 2022

Thanks for the quick reply.

So would the redemption proceeds be eligible for remit (i.e transfer to NRE account from the NRO account) as originally the fund was from property sale?

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

212537 Points Posted on 07 January 2022

The origin of fund will be from redemption of bonds.

The origin from property sell will get nullified by filing ITR of the AY relevant to date of property sell.

Once tax paid certificate issued by CA, the funds will be easily repartee-able.

Toseef

Service

26 Points Posted on 16 January 2022

oh ok.

So once I invest the capital gain in section 54EC bonds, I can take tax exemption on the capital gain in the FY of property sale. In the same year, I can move the property sale proceeds (principal amount + capital gain) to the NRE account once tax obligation meet certificate is prepared by CA.

Further, can I invest the capital gain in 54EC bonds from different companies (NHAI, REC, PFC,...) as I like to diversify the investment?

or does it have to only one company?