Section 54EE Capital Gain Exemption

Capital Gain Exemption On Long Term Capital Assets Under Section 54EE:

Section 54EE of the Income Tax Act?

​​Section 54EE​ provides an exemption on capital gains from the transfer of long-term capital assets if the taxpayer uses the proceeds to purchase long-term assets as specified by the government to fund start-ups. ​

Who can claim an exemption under section 54EE?

​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 54EE?

​​The exemption under Section 54EE​ is available from the capital gain arising from transfer of any long-term capital asset. ​

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

​The exemption is allowed if assessee makes investment in long-term assets as notified by the Central Government to finance the start-ups. ​

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

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

1. Amount of long-term capital gains;
2. Amount invested in specified assets; or
3. Rs. 50,00,000

Investment in long-term specified assets during the financial year in which 
the original asset is transferred and in the subsequent financial year 
should not exceed Rs. 50 lakh.​

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

​The investment should be made within six months of the transfer of the long-term capital asset. ​

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

​No, exemption under this section isn’t allowed if the amount of unutilised capital gains is deposited into Capital Gains Account Scheme. ​

What are the circumstances in which exemption under section 54EE can be withdrawn?

The exemption claimed by assessee under s​ection 54EE can be withdrawn in the following circumstances:

a) Transfer of new asset within 3 years: If long-term specified assets are transferred within 3 years, the exempted amount of capital gain, arising from the transfer of original asset, is chargeable to tax as long-term capital gain in the previous year in which bonds are transferred. Thus, the exemption granted earlier on transfer of original long-term capital asset stands forfeited.

b) Conversion of bonds into money within 3 Years: If long-term specified assets are converted into money within a period of 3 years from the date of its acquisition, the exempted amount of capital gain is chargeable to tax as long-term capital gain in the previous year in which such assets are converted into money.

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