Exemption Of Long-Term Capital Gains On Investment In Bonds

As per Section 54EC exemption in respect of long-term capital gains in the hands of any assessee is available on inveshment in certain bonds. Thus, this section would allow exemption from income tax in respect of long-term capital gains, if invested in select bonds, targeted exclusively on agricultural and rural finance, highways infrastructure and housing.

As per the Finance Act 2006 only two Bonds, namely the bonds issued by National Highways Authority of India and Rural Electrification Corporation Ltd. would qualify for tax exemption.

The exemption from tax on long-term capital gains would be to the extent of investment in these bonds. These bonds would have a lock-in period of three years. Any transfer or conversion of bonds into money during the lock-in period would make the amount so converted as deemed capital gains taxable in the year of transfer or conversion. Such deemed capital gains would also arise, if any loan or advance is taken on the security of these bonds. Any amount invested in these bonds would not be eligible for deduction under Section 80C of the Income Tax Act. The government has put a cap on the investment in these Bonds upto ` 50 lath per person on and from the AY 2009-10.

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Rule-1 : Spread Your Income Among Your Family Members under Income Tax Act.
Rule-2 : Take Full Advantage Of All Tax Exemptions under Income Tax Act.
Rule-3 : Take Full Advantage Of Tax Deductions under Income Tax Act.
Rule-4 : Exempted Incomes under Income Tax Act.
Rule-5 : Don’t Overdo It — Keep Tax Planning Simple under Income Tax Act.
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