Taxability of Interest Earned on REC Ltd 54EC Bonds – Need Expert Clarification

Ask Me Anything
1

Dear Tax Experts,

I am a salaried individual and had invested ₹12,50,000 in REC Ltd 54EC Capital Gain Tax Exemption Bonds during the financial year 2023. As per the bond terms, I earn a fixed interest income of ₹65,625 annually.

I understand that the principal amount invested in 54EC bonds qualifies for capital gains tax exemption under Section 54EC of the Income Tax Act. However, I would like expert clarification on the interest component:

  1. Is the annual interest of ₹65,625 fully taxable as per my income slab under the head “Income from Other Sources”?
  2. Is there any way to save tax on this interest amount (e.g., deductions, exemptions, reinvestment options)?
  3. Do I need to show this interest income in my ITR even if TDS is already deducted (if applicable)?
  4. Any other compliance or reporting requirement I should be aware of regarding this investment?

I would really appreciate your guidance on this matter so I can ensure accurate ITR filing.

3

Hi @Sanjay_S,

The interest income of ₹65,625 from your 54EC bonds is taxable under “Income from Other Sources” as per your income slab. No specific exemptions are available for this interest, but you can invest in other tax-saving instruments like PPF or NPS for deductions. Even if TDS is deducted, you must report the interest income in your ITR. The TDS amount will be reflected in your Form 26AS, and you can claim it as credit while filing. Make sure to report all details accurately and keep records for future reference.

Hope this helps!