someone told me certain bonds help save tax. I know about 54EC bonds for capital gains but not sure what else exists. are there tax-free bonds still available? and how does it all actually work?
54EC is for LTCG only, not general income tax.
okay so 54EC only works if I sold a property or something and have capital gains?
Correct. Section 54EC bonds, issued by NHAI and REC, allow you to invest up to Rs 50 lakhs of long-term capital gains from sale of land or property and claim exemption on that gain. The lock-in is 5 years and the coupon is around 5.25%. The benefit is purely the capital gains exemption, not a reduction in income tax on salary or other income.
so tax-free bonds are only available second hand now? and the yields are not as good because everyone wants them?
what about regular NCDs. is there any way to make those more tax efficient?
Not significantly for most retail investors. NCD interest is taxed at slab rate regardless. Some people try to time purchases through unlisted bond funds for indexation benefits but that has become more complicated after the 2023 debt fund tax changes. For most people the honest answer is: bonds are not a great tax saving tool unless you specifically have long-term capital gains to offset via 54EC.
okay so to summarise: 54EC for property sale gains, tax-free bonds on secondary market for high bracket investors, regular bonds are just slab-taxed and there is no real workaround
yeah that’s basically it
no magic tax saving from regular bonds
54EC is the only real exemption and only for property gains