• Dec
  • 11
  • 2013

Tax benefit under section 54EC on long term capital gain

Posted In Income Tax | , | 48 Comments » Print Friendly and PDF

The benefit under section 54EC can be availed of only if there is an income from a capital asset, being long-term in nature. Long-term capital gains are the profit that a person makes when he sells any capital asset (for example, any immovable property, jewellery or shares) which he has held for a period exceeding three years. An exception is his holding of shares in which the holding period has been fixed at one year.

Any person (including NRI out of NRO account on a non-repatriable basis) and Hindu undivided family (HUF), through its Karta, can make investments (not exceeding Rs 50 lakh in a given financial year) in the two bonds notified by the Government of India. In case only part investment is made, the amount of deduction gets reduced in proportion to the investment.

The two corporations which have been notified by the Government of India as being eligible for issue of these bonds are (a) National Highway Authority of India (NHAI) and (b) Rural Electrification Corporation (REC).

These bonds carry a lower rate of interest as compared to other investment options, such as Public Provident Fund, bank fixed deposits and National Savings Certificates, among others. The main reason for this lower rate of interest is that the investor gets the benefit of reducing his income tax liability upon investing in these bonds, if he has long-term capital gains. These bonds are issued for a fixed maturity period of three years. These bonds have been rated as “AAA/Stable” by Credit Rating and Information Services of India (CRISIL).

The investment has to be made within six months from the date of the transfer in order to be eligible for claiming the benefit of deduction under section 54EC. The face value of these bonds is Rs 10,000, and the full amount has to be paid upfront along with the application.

The maximum amount that a person can invest in these bonds (NHAI and REC combined) in any financial year is Rs 50 lakh. If a person has long-term capital gains which have accrued to him after 1 October of any year, and the amount of capital gains exceed Rs 50 lakh, he can split his investment by investing Rs 50 lakh up to 31 March of the following year and the balance on 1 April of that year. The balance amount in this case, however, should not exceed Rs 50 lakh. By doing this, he can have the benefit of investment of up to Rs 1 crore. Joint applications shall also be included for the purposes of this limit.

The deemed date of allotment is the last date of the month in which the application is made and the amount is realised by the issuer.

These bonds can be held in dematerialised form or in physical form. The bonds can be held under a single name or joint names. The facility for nomination is also available on these bonds. These bonds are non-transferable, non-negotiable and cannot be offered as security for any loan or advance. However, transmission of the bonds to legal heirs in case of death of the bondholder is allowed under the rules.

The NHAI bonds carry interest at 6.25 per cent per annum, payable annually on 31 March every year. REC bonds carry interest at 5.75 per cent per annum, payable annually on 30 June every year. The interest earned on these bonds is fully taxable under the head “Income from Other Sources”. No tax at source would be deducted from the interest on these bonds.

(Republished with amendments.)


48 Responses to “Tax benefit under section 54EC on long term capital gain”

  1. santhiya says:

    agriculture land sold for 1cre thn 50l invested in other capital gain nd other 50l invested in fd .for tat fd did v had tax

  2. Suelan says:

    Dear Sir,

    My friend sold his house in Sept 2014 for Rs. 46 lacs and the capital gains is Rs. 23 lacs. If he invests in 2014 for a flat worth Rs. 35 lacs, what is the balance tax liability and can he pay that after a period of 3 years.

  3. HARPREET says:

    WHETHER MATURITY OF NHAI BOND IS TAXABLE I.E. 50 LAC WHAT HAPPENED AFTER 3 YEARS WHEN NHAI BOND REDEEM. AFTER MATURITY/REDEMPTION OF BOND 50 LACS WILL HAVE TO BE INVESTED IN PROPERTY OR NOT

  4. Raju says:

    Hi,

    Interest received on REC Capital Gain Bonds taxable on receipt basis (the year in which interest received) or on accrual basis?

    Thanks

  5. Rahul Yogi says:

    Dear Sir,

    I am a co-owner of 2 similar residential apartments with identical holding structure along with my motehr & borther. Both the properties were bought in 1994. Out of the 2 properties, one was sold in Dec 2012 & with the sale proceeds, a new apartment was bought in Jan 2013 thus availing the benefits of LTCG for tax exemption.

    However my query relates to the 2nd property which also we want to sell now. Whether we will be eleigible for LTCG under Section 54 for tax exemption,if the sale proceeds are re-invested in a residential apartment within the time frame of 2 years or is there any restriction if a
    person or person(s) have held & sold more than one residential property.

    Best Regards
    Rahul Yogi

  6. amitabh sharma says:

    Hi,
    Suppose if a person sold his property in Rs.45 lacs and he bought a new property of Rs.15 Lacs
    remain Rs.30 Lacs Invest in Sec-54EC REC Bond on January 2012 and after 3 years say Jan-2015
    the bod amount of Rs.30 Lacs will mature whether that Rs.30 Lacs is again taxable or that
    amount is fully tax free? please give me reply..

  7. M BALANI says:

    SIR, ONE OF MY FRIEND SOLD HIS HOUSE PROPERTY AT  17.00  ON 15/04/2014, AND PURCHASED NEW PROPERTY IN FEB-14, (OUT OF ADVANCE MONEY HE HAD RECEIVED).
    FOR RS. 800,000/-
    1) SHOULD HE SHOW IN IT RETURN FOR A.Y. 2014-15 REGARDING PURCHASE OF PROPERTY AND SALE OF PROPERTY  (WHICH WAS COMPLETED IN APRIL 14)  ?
    2) IF HE INVESTS BALANCE OF 900,000/- IN REC BONDS, WILL HE GET EXEMPTION U/S 54/EC ???

  8. VISVESVARA, M. K. says:

    I am a very Sr. Citizen. My estimated income for the assessment year  2015-16   including the LTCG is below tax exemption limit of Rs 500000. Is LTCG  taxable?
    Visvesvara, M. K.

  9. VISVESVARA, M. K. says:

    By sale of a vacant site under jurisdiction of a town panchayat council fetches me a LTCG of Rs 37452 Which i want to invest in 54EC Bonds of Rs10000 per bond, but what to do with Rs 7452 which is less than bond value. Can this be rounded of  to next Rs 10000 for investment in 54EC bonds?
    Please advice.
    Visvesvara, M. K.

  10. sidhi says:

    investment in 54 ec bond is within 6 mnths from date of registration of sale or from date from date of transfer of amt….wat if amt transfered first and then registration occurred

  11. Deepak Maniar says:

    My mother purchased Bond under 54 EC. Before maturity she expire then nominate can withdraw before maturiy ? How much duration is mandatory after investment if owner of the investment under 54 EC expired ?

  12. amitabh sharma says:

    Hi,
    Suppose if a person sold his property in Rs.45 lacs and he bought a new property of Rs.15 Lacs
    remain Rs.30 Lacs Invest in Sec-54EC REC Bond on January 2011 and after 3 years say Jan-2014
    the bod amount of Rs.30 Lacs will mature whether that Rs.30 Lacs is again taxable or that
    amount is fully tax free?

  13. MAHESH DIKE says:

    Dear Sir ,
    If Long term Capital Gain on sell of Residential flat is more than Rs 50 Lacs can i invest Part in bonds ( below Rs 50 Lacs) and part in purchase of new residential flat.
    Please advise

  14. Raju says:

    Hi,

    Interest received on REC Capital Gain Bonds taxable on receipt basis or accrual basis?

    Thanks

  15. ibnsuleman bhai says:

    please let me know what the truth is finally. can 1 crore be invested by splitting 50 lacs for each financial over which the 6 months period spread over

  16. PRAKASH KRISHNAN says:

    Exemption under 54EC is limited to Rs.50 lacs and not Rs.1 Cr by investing in two financial years as stated in the article. ITAT has disallowed such interpretation of Act.

  17. ibnsuleman bhai says:

    After completing 3 years if I sell my flat in such a way that capital gain is zero after availing of indexation benefit and thus receive 130 lacs.Will there be any other tax on it? or it will be tax free totally in my hand with no legal conditions asto where I invest it.
    Note this flat was bought to save capital gain.Thanks.

  18. ibnsuleman bhai says:

    Sir,I am to receive my amount in REC on 15th April 2014 that was invested to save capital gain.Is this amount tax free in my hand? Interst thereon was taxable added to my other taxable income.
    If I sell a property in this month or say end December 2015 for 1 crore can I invest 50 lacs in the financial year of sale and 50 lacs in the financial year that follows it,thus total 1 crore against one sale of property,will my capital gain tax be zero?

  19. sk says:

    hi
    Can anyone pls give me some advice.
    if the amount acquired from selling a house has not been put in the capitals gain tax savings bond within six months of selling the house, then what is the procedure to be followed for exemption from capitals gain tax.is there any way out for capital gains tax exemption.can anyone please give some advice.will there be any use if the amount is put in a capitals gain tax savings bond after 9 months of selling

  20. Chandrakant says:

    Can I invest my Long Term Capital Gain Tax for Vacant Plot or Land?

    Pl also update me with hoe to reflect the gain ITR-2, with proper speciman.

    Regards

    CS Choudhari

  21. Pavitra says:

    Hi,

    I had a RSU of MNC company. I had sold and incurred capital gains from the same this year. Can i invest in the bonds under 54EC bonds and claim the exemption.

    Can anyone please clarify?

  22. ramesh says:

    i sold commercial proeprty and i purchased a residential house. if i can take exemption on capital gain.

  23. nita says:

    My Capital Gains Bonds of 6% mature in August 2014 .Is the interest on these Bonds tax-free??
    Is the Bond amount of Rs.50 lacs to be compulsarily re-invested???
    Is the long-term gain tax to be re-invested as per IT rules?
    please enlighten me.
    i am a senior citizen female.
    Thank you.

  24. Roy says:

    Hi,

    Is the LTCG bonds on maturity, taxfree or taxable?

    Is there a provision to re-invest on its maturity for another term?

    Can I invest on maturity the complete bond value on to a new property?

    If not taxable, can I use this bond value on maturity for any other tax exemptions schemes?

    Appreciate your advice/response to the above queries please.

    Thanks,
    Roy

  25. Sanjay says:

    Hi,

    Suppose if a person sold his property in Rs.45 lacs and he bought a new property of Rs.15 Lacs remain Rs.30 Lacs Invest in Sec-54EC REC Bond on January 2011 and after 3 years say Jan-2014 the bod amount of Rs.30 Lacs will mature whether that Rs.30 Lacs is again taxable or that amount is fully tax free?

  26. prabha sekhar says:

    we are nri , we sold our house , capital gain is 50 lakhs. we will deposit this money in nro account , and invest in 54EC bond . After 3 yrs we want to repatriate
    that amount ( 50 lakhs + interest )back to usa.Is there any condition/rules I can not repatriate ? .
    Thanks.

  27. navjeet says:

    pls tell me the rec capital gain BONDS are made available to customer in how much time

  28. shanmugaram says:

    hi sir,

    i have got a long term capital gain of rs 8 lakh on 17 th of october 2011,
    i already have another property in my name , so i can not avail the reinvestment exemption,.
    i wan not aware of the 54ec exemption plan, now i am about to do the filing it is nearly 11 months after the transfer was done ., please advise me on how to save the capital gain tax.,

    thank u in advance..!

  29. dilip says:

    I am an individual holding property under category other than residential . I intend to dispose the same. with the proceeds i will bye a residential house. even then i left with some amount for disposal. can i  invest the same under  section 54EC. so as not to attract capital gain.  

  30. Sivakumar B says:

    You have mentioned that I can park the Long Term Capital Gain out of a House selling in the capital gain saving account. After partking the amount say for 1year am I allowed to invest in 54EC bond and still claim excemption on LTCG.

  31. Dilbagh singh says:

    My income is 5.75 lakh ,how much income i can invest in lic and bond to save income tax.

  32. Vidya devi says:

    I need a information about LTCG Tax Free Bond of REC undre sec. 54 EC. I need to invest Rs. Five lakh in such bonds.These bond can be purchase from any bank  saving account or  require to open another Capital Gain deposit account in nationalised bank only.Please  give me this information.

  33. Abani says:

    I need a clarification about maturity proceeds, whether it is taxable or not?

  34. dilip yashwant phatak says:

    please give me latest information about 54ec exemption up to 1 crore investing in two financial years

  35. dilip yashwant phatak says:

    Please give me latest news about investing Rs.One crore in different financial years

  36. Suresh says:

    Whether amt. received on the maturity of 54EC bonds are taxable?

  37. vkjain says:

    In budgrt 2013, is INTEREST rate on capital gain BONDS maintained at 6% per annum or ANY CHANGE IS PROPOSED in INTEREST RATE. kindly advise on my mail id: vk.jain@yahoo.co.in …Thanks

  38. vkjan says:

    In budgrt 2013, is INTEREST rate on capital gain BONDS maintained at 6% per annum or ANY CHANGE IS PROPOSED in INTEREST RATE. kindly advise…Thanks

  39. vswami says:

    “If a person has long-term capital gains which have accrued to him after 1 October of any year, and the amount of capital gains exceed Rs 50 lakh, he can split his investment by investing Rs 50 lakh up to 31 March of the following year and the balance on 1 April of that year. The balance amount in this case, however, should not exceed Rs 50 lakh.”

    ITAT Says ‘No’.

    See recent order in  ACIT vs. Raj Kumar Jain & Sons (HUF) (ITAT Jaipur)

    The view the Tribunal has taken is seen to be very well reasoned and based on sound logic.

    What requires a special noting is that, .the suggestion to the contrary , if followed as a matter for tax planning, and  especially, for paying advance tax, the taxpayer is most likely to be assured of a long drawn battle with the Revenue. Based on such a suggestion were he to make an investment,  he is quite likely  to meet  the proverbial fate of  falling  between 2 stools.

  40. ASHOK SARVAIYA says:

    Pl give the case law for investment of Total  Rs. 1 Cr allowabel. i.e Rs. 50 Lacs in One Financial & Another Rs. 50 lacs in next financial for sale of One Capital Assets in November/December.You 

  41. Ashit says:

    Can you tell me what will be effect when Pvt. ltd co. transfer bonds u/s. 54EC to LLP with in 3 years….??? Can LLP can continue the same for balance years and is there will be any CG on such transfer…???? because such transfer is not taxable u/s.47 if conditions are satisfied. .??

  42. kamlesh shah says:

    I have purchase 4 agri land in 1980 to 1990 & in 1997 i goes for non agriculture & sold around 100 plots in 2008 & 2009.and the sell amount recieved was invested in 54 ec. so i want to clarify that whether capital gain is there or it is a business income. reply me soon

  43. NAGAMOHAN says:

    Suppose if a person Invest Rs.50 Lacs in Sec-54EC REC Bond on January 2011 and after 3 years say Jan-2014 the bod amount of Rs.50 Lacs will mature whether that Rs.50 Lacs is again taxable or that amount is fully taxfree.

  44. kishore surana says:

    income on agriculture land on sale not capital gain

  45. narahari says:

    i invested an ammount of Rs 10,80,000 in NHAI bonds in oct 2009 and i got interest of an ammount Rs 26,000 for the period 2009-10. under what section i can claim IT rebate for the interest ammount

  46. Bonson says:

    Hello,

    I had 2 questions:

    1. My father had some agricultural land which was transfered to my mother;’s name after his demise. My mother sold the land for Rs. 10 Lacs.

    Is sale of agricultural land considered as Capital gain?

    2. From where can I purchase these NHAI or REC bonds?

    Best Regards,
    Bonson

  47. Gautam says:

    Hi,
    If the amount is more than 1 Cr. then you have to open a Capital gains AC in a nationalised bank, and then purchase a resi property within 2 yrs or construct one with 3 yrs from the date of sale of your property. Even after that if some money is not utilised for the above, a flat rate of 20% tax is payable.

  48. A.K.SHAH says:

    YES, THANKS.
    HOWEVER WHAT ABOUT THE AMOUNT MORE THAN 1.00 CRORE, I UNDERSTNAD IT IS TO BE IN SPECIAL A/C OF BANK CGAR SCHEM.
    CAN THIS ADDITIONAMOUNT CAN BE INVESTED IN RES PROPERTY EVEN AFTER 2 YEARS?
    WHAT IS THE PROCEDURE FOR WITHDRAWING AMOUNT FROM THE BANK OF CFGAR A/C? CAN WE PAY TAX AFTER WITHDRAWL ?
    PL. LET ME KNOW …
    THANKS

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