Section 54EC provides exemptions to a seller from the long-term capital gains arising from the transfer of land or building. The exemptions shall be allowed only if the land or building transferred is a long-term capital asset.
Under this section, if land or building is sold after two years of purchase then one can avail tax exemptions by investing the gains in NHAI bonds or REC bonds.
Who can claim the exemption?
Any taxpayer including a company or firm can claim an exemption under Section 54EC. Thus, this exemption is available to all assesses, i.e. individual, HUF, firm or company, etc. irrespective of their residential status during the previous year.
When an exemption is allowed?
This exemption is allowed when:
- A person transfers land or building;
- Long-term capital gains arise from such transfer [exemption is not available for short-term capital gains]; and
- He invests the capital gains in bonds issued by NHAI or REC or notified bonds which are redeemable after five years.
If an immovable property is transferred after holding for 24 months or more, the resultant capital gain is deemed as long-term capital gains.
When to invest?
The capital gains can be invested in NHAI or REC bonds or notified bonds within 6 six months from the date of transfer.
How much exemption is allowed?
The amount of exemption to be allowed under Section 54EC shall be lower of the following:
- Actual capital gains from transfer of capital asset; or
- Amount invested in the bonds; or
- Rs. 50 lakhs
The exemption under Section 54EC cannot exceed Rs. 50 lakhs in a financial year even if the period of six months, allowed for investment in bonds, falls in two financial years.
What if bonds are transferred before maturity?
Exemption allowed under Section 54EC is withdrawn if a taxpayer transfers the bonds (or converts them into money or takes a loan on the security of such bonds) within five years from the date of acquisition. The exemption is withdrawn by way of treating the exemption granted earlier under Section 54EC as long-term capital gains of the year in which such bonds are transferred.
Whether any bond is currently available for investment?
- NHAI Bonds (54EC Capital Gains Bonds) are available for purchase. The issue will be closed on March 31, 2020 or on achieving of ceiling limit of Rs. 5,000 Crores. The bonds shall get matured after 5 years and will earn 5.75% rate of interest per annum (know more).
- REC Bonds (REC Capital Gains Tax Exemption Bonds – Series XIII) are available for purchase. The issue will close on March 31, 2020. The bonds shall get matured after 5 years and will earn 5.75% rate of interest per annum (know more).