1. The Provisions of Section 54EC towards Exemption of Capital Gains on Transfer of any Long Term Capital Asset on the basis of Investment in certain Bonds are given below –
1. Who can claim exemption :
2. Which specific asset is eligible for exemption :
Long-term capital asset (being land or building or both) (may be residential or commercial, may be situated in India or outside India).
3. Which asset the taxpayer should acquire to get the benefit of exemption :
Bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) or notified bonds. Maximum investment in one financial year is Rs. 50 lakh, Moreover, investment made by an assessee in the NHAI/REC bonds/notified bonds, out of capital gains arising from transfer of one or more original asset, during the financial year in which the original asset or assets are transferred and in the subsequent financial year should not exceed Rs. 50 lakh.
4. What is time-limit for acquiring the new asset :
Within 6 months from the date of transfer.
5. How much is Exempt (Quantum of Deduction):
Investment in the new asset or capital gain, whichever is lower.
In other words, capital gain shall be exempt to the extent it is invested in the long-term specified assets within a period of 6 months from the date of such transfer.
The new asset should not be transferred within 3 years, if investment is made before April 1,2018.
6. Is it possible to Revoke the Exemption in a Subsequent Year :
In the following cases, exemption will be taken back (and the amount of exemption given earlier will become long-term capital gain of the year in which the assessee commits the following default) –
- – If the new asset (i.e., bonds of NHAI/REC/notified bonds) is transferred within 5 years from its acquisition.
- – If the new asset is converted into money or any loan/advance is taken on the security of the new asset within 5 years† from the date of acquisition of the new asset.
7. Investment in Bonds limited to Rs. 50 Lakh :
The investment made in the long-term specified asset by an assessee out of capital gains arising from transfer of one or more original asset during any financial year in which the original asset or assets are transferred and in the subsequent financial year cannot exceed Rs. 50 lakh.
8. Consequences if the long-term specified asset is transferred or converted into money within 3 years:
Where the long term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of 3 years from the date of its acquisition, the amount of capital gain exempt u/s 54EC earlier, shall be deemed to be long-term capital gain of the previous year, in which the long term specified asset is transferred or converted (otherwise than the transfer) into money.
Mr. Dust acquired shares of G Ltd., on 15.12.2008 for Rs. 8,00,000 which were sold on 15.5.2017 for Rs. 19,50,000. Expenses of transfer were Rs. 20,000. He invests Rs. 3,00,000 in the bonds of Rural Electrification Corporation Ltd. on 16.10.2017.