TAX BENEFITS UNDER SECTION 54 EC OF THE INCOME TAX ACT 1961
Section 54 EC relating to exemption on long term capital gains if invested in Bonds was inserted by the Finance Act 2000 effective for the assessment year 2001-2002 and subsequent years from 1st April, 2001. The section as effective for the assessment year 2008-09 and subsequent years from 1st April, 2007 reads as follows:
CAPITAL GAIN NOT TO BE CHARGED ON INVESTMENT IN CERTAIN BONDS
1) Where the capital gain arises from the transfer of a long term capital asset, (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say.
a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45.
(Provided that the investment made on or after the 1st day of April, 2007 in the long term specified asset by an assessee during any financial year does not exceed fifty lakhs rupees.
2) Where the long-term specified asset 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 asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) 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.
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 asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken.
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),
a) A deduction from the amount of income-tax with reference to such cost shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;
b) A deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.
EXPLANATION – For the purpose of this section,
a) “Cost”, in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset;
b) Long-term specified asset for making any investment under this section during the period commencing from the 1st day of April, 2006 and ending with the 31st day of March, 2007 means any Bond redeemable after three years and issued on or after 1st day of April, 2006 but on or before the 31st day of March, 2007,
(i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or
(ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), and notified by the Central Government in the Official Gazette for the purpose of this section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such Bond) as it thinks fit
Provided that where any Bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification by the Central Government in the Official Gazette under the provisions of clause (b) as they stood immediately before their amendment by the Finance Act, 2007, such Bond shall be deemed to be a Bond notified under this clause.
(c) Long term specified asset for making any investment under this section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India constituted under section 3 of National Highways Authority of India Act, 1988 or by Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956).
It is recommended that the Bondholders / Subscribers should also consult their own tax advisors on the tax implications of the acquisition, ownership and sale of the Bonds, and income arising thereon.
TAX DEDUCTION AT SOURCE
The Ministry of Finance, Department of Revenue, Government of India, has, by notification in the official Gazette on 5th March, 2004 (notification No. 67/2004/F.No. 275/5/2004-IT (B) announced exemption from TDS provisions as follows.
“In exercise of the power conferred by clause (ii) (b) of the proviso to Section 193 of the Income Tax Act, 1961 (43 of 1961), the Central Government hereby specifies the “NHAI Non-convertible Redeemable Bonds with benefits under Section 54 EC of the Income Tax Act, 1961” issued by National Highways Authority of India, New Delhi for the purpose of the said clause.
Provided that the benefit under the said clause shall be admissible in the case of transfer of such Bonds by endorsement or delivery, only if the transferee informs National Highways Authority of India, New Delhi by registered post within a period of 60 days of such transfer”.
Please Note:
Where the application for the Bonds is made by the subscribers in joint names, such joint holder(s) shall ensure that no separate application has been made by such joint holder as an applicant singly or jointly with some other applicants. If such separate application is made, the investments made in the 54 EC Bond Issues of NHAI & REC during F/Y 2012-13 shall not in aggregate exceed Rs. 50 lakhs (Rupees Fifty lakhs).
Benefit u/s 54 EC of the Income Tax Act, 1961 may be denied on account of multiple applications being made by the applicant either singly or along with other joint holders such that the investments in the 54 EC Bonds during the F/Y 2012-13 exceed Rs.50 lakh (Rupees Fifty lakh).
Details of 54 EC Capital Gains Bonds of NHAI for the year 2012-13
| Credit Rating | “AAA/Stable” by CRISIL and “ AAA(ind)(Affirmed)” by Fitch Ratings |
| Face Value | Rs. 10000/- per Bond |
| Issue price | Rs. 10000/- per Bond |
| Minimum application size | One Bond of Rs. 10,000/- |
| Maximum application size | Five Hundred Bonds of Rs. 10,000/- each (Rs. 50,00,000 ) subject to fulfillment of other conditions as specified in Income Tax Act. |
| Mode of Subscription | 100% on application |
| Deemed Date of Allotment | Last day of each month for application money cleared and credited in NHAI’s collection account |
| Transferability | The Bonds are non-transferable, non-negotiable and cannot be Offered as a security for any loan or advance |
| Maturity | 3 years from Deemed Date of Allotment |
| Interest payment | Annual |
| Coupon rate | 6.00% payable annually. |
| Redemption | Bullet, at the time of Maturity after 3 years |
| Trustee | SBICap Trustee Company Ltd. |
| Availability of the prospectus and application form | Across the country with Union Bank of India/IDBI Bank and Select Branches of other Bank as detailed in IM,NHAI Offices,Selected SEBI Registered Category-I Merchant Bankers |
| Bankers | All the Branches of Union Bank of India/IDBI Bank & Selected branches of Axis Bank, Canara Bank,ICICI Bank, Punjab National Bank,State Bank of India & Syndicate Bank. For details of bank branches please refer Information Memorandum (IM). |
| Ceiling | Rs.3000 Crore |
| Date of Allotment | At the last day of every month |
| Date of Start | 02.04.2012 |
| Date of Closure | 31.03.2013 |
| Applicable Laws | Income Tax Act 1961 and NHAI Act |
| Registrar | M/s Beetal Finacial & Computer Services (P) Ltd, “Beetal House”,3rd Floor, 99, Madangir,Behind Local Shopping Centre, New Delhi-110062 , ph. 011-29961281-83, Fax – 011-29961284,Email- [email protected] |
| TDS | As per prevaling rules,TDS on the interest paybale to ‘Resident’ Indian will not be deducted. |
For detailed prospectus, please Click here and for any further information, please contact Sh. S.K.Chauhan, Manager (F&A) at [email protected] or at Ph. No.011- 25074100-200 Extn. 2479, (Tele-Fax) 25093517 .
The Applicants can download application forms from this website and deposit completed forms to the designated bank branches. The bank branches will allot the required application form number and will accept the application. For application form , please Click here
Sir/ madam,
In this 54ec Bonds , their are redemption before maturity is possible or not? If yes then pl give the procedure
pl give the answer
Whether interest on the above REC bonds is exempt under section 10(15)(iv)(h) of the Income Tax Act
What is the tax impact on redemption of NHAI/REC Bonds after completion of 3 years.
Can we liquidate the NHAI capital gains bonds within 2 months of purchasing them. Pls help.
Thanks in advance.
Inviting special attention to the
proposed provision in the current year financial Budget , section 194LAA, to be enacted wef 1st Oct 2012 , requires TDS on consideration arising from transfer of any immovable property . An amendment of Section 197, though consequently warranted, has not been proposed. As such, for the purpose of TDS as proposed, tax exemption that is open to be availed of under section 54 EC would not be reckoned/taken into consideration. Unless the glaring lacuna is plugged, with a suitable corrective amendment of section 197, investment in the newly announced bonds (in cases of transfers after 1-10-2012 ) will lose its sheen ; may prove a damp squib.
Incidentally, the relevance of the 5th March 2004 Notificatiion made a mention of in the paragraphs under the head – TAX DEDUCTION AT SOURCE, to the context herein, is not understood.Further, it appears that, the exemption from TDS provisions announced thereby was in respect of capital gains from transfer of those old Bonds thedmselves (being redeemable bonds)
i.e. in specie. In a stark contrast, the Bonds to be issued now are, in any case, as per the scheme itself, ‘non-transferable’.