Sold property to save tax? This “safe” move could silently wipe out ₹9.6 lakh in returns

You just sold property and want to dodge that steep 12.5% capital gains tax — so you rush to invest in 54EC bonds. But here’s the kicker: what feels like a safe tax hack could quietly cost you lakhs in lost returns over five years.

Sujit Bangar of TaxBuddy.com broke down the 54EC strategy — a popular route to sidestep long-term capital gains (LTCG) tax on sale of land or buildings — and explained why it might not be the smartest financial decision for many.

Under Section 54EC, you can invest up to ₹50 lakh of your LTCG in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) within six months of the property sale. The lure? Full exemption from LTCG tax, which could otherwise be over ₹6.5 lakh.

But look closer and cracks appear. The bonds are locked in for five years, can’t be sold or pledged, and earn a taxable interest of 5.25%. That brings post-tax returns down to a modest 3.745% for those in the highest income bracket.

Bangar contrasts this with equity mutual funds, where five-year returns historically range from 12% to 14% CAGR. After accounting for LTCG tax, that still delivers a robust 10.5% to 12.25% return — potentially earning you ₹9.6 lakh more over five years, even after paying tax upfront.

The takeaway? If your only goal is to save every rupee in tax, 54EC bonds do their job. But for investors with time and the willingness to ride out some market volatility, smarter investing could leave you significantly better off.

Kanan Bahl of FinGrowth weighed in, noting that for those with longer horizons and some tolerance for index fund fluctuations, accepting the tax hit and investing in growth assets often makes more sense. For added stability, he recommends arbitrage funds to balance risk without sacrificing liquidity or yield.