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Capital Gain Exemption On Sale Of Land

Capital Gain Exemption On Sale Of Land
Exemption from Capital Gain Arising From transfer of Land ,Building or Both and 
Reinvesting in specific bonds [section 54EC of Income tax act]

What is Section 54EC of the Income Tax Act?

​​Section 54EC​ allows for an exemption on capital gains arising from the transfer of land, buildings, or both. This exemption is granted if the taxpayer invests in bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation Limited (REC). ​

Who can claim exemption under section 54EC?

​This exemption is available to all assesses, i.e. individual, HUF, firm or company, etc. irrespective of their residential status during the previous year.

Which capital asset should be transferred to claim the exemption under section 54EC?

​​The exemption under Section 54EC​ is available from the capital gain arising from transfer of a long-term capital asset, being land or building or both. ​

Which new asset should be acquired for claiming exemption under section 54EC?

The exemption is allowed if assessee makes investment in the bonds issued by following entities:

National Highway Authority of India (NHAI Bonds)
Rural Electrification Corporation Limited (REC Bonds)
Power Finance Corporation Limited or PFC bonds,
Indian Railway Finance Corporation Limited or IRFC bonds.

What is the maximum amount of exemption allowed under section 54EC?

The amount of exemption will be the lower of the following:

  • The amount of capital gains.
  • The amount invested in specified bonds; or
  • Rs. 50,00,000

What is the prescribed time limit for investment in new asset under section 54EC?

​The investment should be made within six months of the transfer of the land, building, or both. ​

 

Is the benefit of depositing amount of capital gains in capital gain account scheme is available to claim exemption under section 54EC?

​​No, the benefit of depositing unutilised amount of capital gains isn’t available to claim s​ection 54EC. ​

 

What are the circumstances in which exemption under section 54EC can be withdrawn?

​​The exemption claimed by assessee under s​ection 54EC can be withdrawn in the following circumstances:

a) Transfer of bonds within 5 years: If the bonds are transferred within five years, the previously exempted amount of capital gains from the transfer of the original asset will be subject to tax as a long-term capital gain in the previous year in which the bonds are transferred. As a result, the exemption previously granted for the transfer of the original long-term capital asset is forfeited.

b) Conversion of bonds within 5 Years: If the bonds are converted into cash within five years of their acquisition, the previously exempted amount of capital gains will be subject to tax as a long-term capital gain in the previous year in which the bonds are converted into cash.

How to make investment in 54EC bonds

These bonds are not listed in the stock exchange. Hence you can buy them by the issuer directly either in a demat form or a physical form. Let us understand how to invest in the above mentioned bonds:

  • Step 1: Download the respective bond Form from here –
  1. REC bond
  2. NHAI bond
  3. PFC bond
  4. IRFC bond
  • Step 2: Choose the‘ direct’ option on the download page.
  • Step 3: Select the number of forms to download.
  • Step 4: Enter the captcha and download.
  • Step 5: The form downloads in ZIP format.
  • Step 6: Unzip and extract the form
  • Step 7: Print the form and fill as per the given instructions.
  • Step 8: Investors should attach either a demand draft or account payee cheque and necessary enclosures at the designated branches of collecting banks – Axis Bank, Canara Bank, State Bank of India, HDFC Bank, ICICI Bank, IDBI Bank, IndusInd Bank or Yes Bank.
  • Step 9: You can also directly deposit the amount in the respective collection account by way of NEFT/RTGS and invariably fill the application forms as given on the website online and mention the UTR no. at space provided in the application form.

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