(i) In case the capital gain arises from the transfer of a long term capital asset (to be called as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long term specified asset, such capital gain shall be exempted in accordance with the following provisions of this section
(a) if whole of such capital gain is reinvested in the long term specified asset the whole of such capital gain shall be exempted.
(b) if the amount of the long term capital gain reinvested in specified asset is less than the capital gain arising from the transfer of the original asset, amount so invested in specified asset shall be exempted. [Section 54EC(l)]
(ii) Where the long term specified asset is transferred or converted otherwise than by transfer into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head “capital gains” relating to long term capital asset of the previous year in which the long term specified asset is transferred or converted (otherwise than by transfer) into money.
In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken. [Section 54EC(2)]
(iii) The Finance Act 2007 (w.e.f. 1-4-2007) has imposed a ceiling on investment by an assessee in such long term specified assets during any financial year upto 50 lakhs. This means that exemption u/s 54 EC shall be restricted upto 50 lakhs only on investments made on or after 1-4-2007 in the long term specified assets.
(iv) “Cost”, in relation to any long term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset.
(v) “Long term specified asset” shall mean any bond redeemable after three years and issued on or after 1st April 2007 by the National Highway Authority of India or by Rural Electrification Corporation Limited.