A Bond is a debt instrument issued for the purpose of raising capital by borrowing.

Bonds can be issued by companies, financial institutions, or the government. Bonds issued by the government are considered the safest bonds.

Bonds can be divided into different categories based on tax status, credit rating, issuer type and maturity.

Bonds are suitable for regular income purposes.

Specific tax saving or tax free bonds are available that offer certain tax benefits to the investor.

In accordance with section 54 EC of the Income Tax Act, 1961, all categories of tax payers would be eligible to save tax in respect of long term capital gains by making investments in certain Bonds prescribed.

These bonds are classified as "long-term specified asset" and are issued by NABARD, REC, NHAI,NHB and SIDBI.

These bonds are specifically for investors who have made some long term capital gains, and would like to save capital gain taxes on this amount.

Only long term capital gains are eligible for these bonds though, and short term gains are not covered under section 54EC.

The interest from these bonds is fully taxable.