Capital gain bonds, also known as capital gains tax exemption bonds, are financial instruments issued by certain government agencies in some countries, primarily to provide tax incentives to individuals or entities who have realized capital gains from the sale of certain assets, such as real estate or stocks. These bonds are typically used as a way to defer or exempt the capital gains tax on the profits made from the sale of such assets.

Here are some key points about capital gain bonds:

1. **Tax Benefits:** The primary purpose of capital gain bonds is to provide tax benefits to investors. When an individual or entity sells a capital asset and makes a profit, they are usually liable to pay capital gains tax on that profit. By investing the proceeds from the sale into these bonds, they can defer or exempt the capital gains tax, at least for a certain period.

2. **Issuing Authorities:** Capital gain bonds are typically issued by government entities or institutions authorized by the government. In India, for example, Rural Electrification Corporation (REC) and National Highways Authority of India (NHAI) are known for issuing such bonds.

3. **Lock-in Period:** These bonds often come with a lock-in period during which the investor cannot redeem or sell them. The lock-in period can vary depending on the country and specific bond issue.

4. **Interest Rate:** Investors receive periodic interest payments on the capital gain bonds, which are typically lower than market interest rates on other fixed-income investments. However, the interest income is usually exempt from income tax, further enhancing the tax benefits.

5. **Maturity and Redemption:** Capital gain bonds have a fixed maturity date when the principal amount is repaid to the investor. Upon maturity, the investor can redeem the bonds and receive the principal amount along with any outstanding interest.

6. **Applicability:** The eligibility criteria for investing in capital gain bonds, as well as the specific terms and conditions, may vary by country and issuer. Generally, they are used for specific types of capital gains, such as those from the sale of a residential property.

7. **Limitations:** There may be limits on the maximum amount an individual can invest in these bonds to claim tax benefits. Additionally, these bonds are often not as liquid as other investments since they come with a lock-in period.

It's important to note that the availability and terms of capital gain bonds can change over time and may differ from one country to another. Therefore, if you are considering investing in such bonds or using them for tax planning purposes, it's advisable to consult with a financial advisor or tax professional who is knowledgeable about the specific regulations in your jurisdiction.