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Capital Gain Exemption u/s 54EC

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Capital gain not to be charged on investment in certain bonds-Section 54EC

Eligible Assessee: Any assessee

Nature of Capital Asset transferred: Any long-term capital asset

Re-investment Conditions/New Asset: Investment of capital gain amount in the bonds of RECL or NHAI within a period of 6 months after the date of transfer

Computation of taxable amount of Capital Gain

 

Situation Taxable Capital Gain
If amount invested is less than the amount of capital gain Capital Gain  () Cost of bonds

purchased

If amount invested is equal to more than the amount of capital gain Nil

 

Therefore, capital gain to the extent of cost of specified bonds purchased shall be exempt.

Note

  • The investment to be made in the long-term specified asset by an assessee during any financial year does not exceed 50 lakh rupees. (First Proviso)
  • The investment made by an assessee in the long-term specified asset, from capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed 50 lakh rupees.(Second Proviso inserted by the F.A. 2014 w.e.f AY 2015-16)
  • Therefore maximum amount that can be claimed u/s 54EC during one previous year is Rs. 50,00,000

Transfer of bonds within 3 years-Sub section(2) Where the long-term specified bonds 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 bonds 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.

Exemption withdrawn if loan taken on the security of long term specified assets –Explanation  In a case where the original asset is transferred and the assessee invests the whole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 bonds and such assessee takes any loan or advance on the security of such specified bonds, he shall be deemed to have converted (otherwise than by transfer) such specified bonds into money on the date on which such loan or advance is taken.

No deduction under other provision-Sub section(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1), no deduction in respect of such asset shall be provided u/s 80C.

 

Case Laws

Exemption u/s 54EC can be claimed in respect of short term capital gain arising u/s 50 as long as the capital asset had been held by the assessee for more the 36 months. DCIT v Himalaya Machinery (P.) Ltd. (2013) 29 Taxmann.com 380 (Guj)

If bonds of assessee’s choice are not available throughout period of six months as provided under section 54EC, time to invest in bonds would get automatically extended till bonds are available in market. The statute itself provides that assessee can invest long term capital gain in bonds of NHAI or RECL. If bonds of assessee choice, out of two, are not available in the market, time to invest would extend automatically. CIT v Cello Plast (2012) 209 Taxman 617(Bom)

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