Provisions of section 54EC provide exemption towards long term capital gain arisen on the transfer of land or building or both when the amount is invested into the specified bonds. The present article briefly explains the provisions of section 54EC of the Income Tax Act.
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Understanding basic provisions of section 54EC of the Income Tax Act
Following table explains the provisions of section 54EC in a simple way –
| Exemption under section 54EC is available to – | All the categories of persons |
| The capital asset transferred should be – | Land or building or both. Such land or building or both should be a long term capital asset. |
| Amount of capital gain should be invested to – | Long term specified asset |
However, more elaborately the provisions of section 54EC are explained herein below –
1. All categories of persons are eligible to avail exemption benefit under section 54EC of the Income Tax Act.
2. The exemption is available only towards the capital gain arisen on account of transfer of long term capital asset (being land or building or both).
3. The assessee has invested the amount of capital gain (wholly or partly) in the long term specified assets.
4. The amount should be invested within a period of 6 months from the date of transfer.
5. The investment in the long term specified assets by an assessee during the Financial Year cannot exceed INR 50 Lakhs.
6. The investment in the long term specified assets by an assessee (from the capital gain arising from the transfer of one or more land or building or both) cannot exceed INR 50 Lakhs during the financial year in which the land or building or both is transferred and in the subsequent financial year.
Understanding the term ‘Long term specified asset’ for Section 54EC
Exemption under section 54EC is available only by investing the amount into long term specified asset. Explanation (ba) of section 54EC (made effective from 1st April 2019) explains the term ‘Long Term Specified Asset’. The same means as under –
| Investment Period | Particulars |
| On or after 1st April 2007 but before 1st April 2018 | The bonds issued on or after 1st April 2007 but before 1st April 2018 by –
1. National Highway Authority of India. 2. Rural Electrification Corporation Limited. 3. Any other bond as notified in the official gazette. The bonds should be redeemable after 3 years. |
| On or after 1st April 2018 | The bonds issued on or after 1st April 2018 by –
1. National Highway Authority of India. 2. Rural Electrification Corporation Limited. 3. Any other bond as notified in the official gazette. The bonds should be redeemable after 5 years. |
Amount of exemption available under section 54EC of the Income Tax Act
The amount of exemption allowable under section 54EC is lower of the following –
- Amount of capital gain invested in the long term specified assets; or
- INR 50 Lakhs
Withdrawal of Section 54EC exemption
The exemption claimed under section 54EC would be withdrawn, in case the long term specified asset is transferred or converted into the money before the expiry of the period of three years or five years, as the case may be.
In case of transfer / conversion, the amount of exemption claimed under section 54EC shall be deemed to be income under ‘Capital Gains’ as long term capital gain in the previous year in which the long term specified asset is transferred or converted.
It important to noted here that in case the assessee has taken any loan or advances against the long term specified asset, then, the same would be deemed as converted into money on the date on which such loan or advances is taken.
Frequently Asked Questions (FAQ) on Section 54EC
Q.1 What is Section 54EC?
Ans. Section 54EC covered the exemption provisions with regard to long term capital gain arisen on the transfer of land or building or both and invested the amount into the specified bonds.
Q.2 What is 54EC of the Income Tax Act?
Ans. 54EC is an exemption section which grants exemption towards the long term capital gain earned by transferring the land or building or both.
Q.3 When should I invest in 54EC bonds?
Ans. In order to claim the exemption under section 54EC, the assessee is required to invest the amount within a period of 6 months from the date of transfer.
Q.4 How is exemption calculated under section 54EC?
Ans. Exemption under section 54EC is calculated lower of the amount of capital gain invested or INR 50 Lakhs.
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In reference to my earlier comment dated 15/11/2020 at 3:30 pm, Kindly ignore that and consider this one.
I have sold a free hold 300 Meter plot in Meerut in November, 2020 for Rupees 26,00,000/- though the sale price of the plot as per circle rate comes to Rupees 39,60,000/- @ 13,200/- per Square Meter.) I have sold the plot because I was in need of money & no customer was seem to available in Market.
I purchased it in 1989 from MDA for Rupees 1,35,000/- on Instalment but the total payment had been made to MDA was Rupees 2, 06, 867. (All inclusive: Such as, Principal; Interest, penalty for late payment of Instalments & free hold charges etc.)
It was purchased in 1989 on instalment & Allotted to me on 20/11/1989. First & second instalment was paid to MDA on 12/02/1991 & 15/05/1991 respectively with interest and penalty. Rest of all the instalments i.e. 3 to 7 was paid on 21/02/1994 with interest and penalty etc. The last instalment i.e. 8th was paid with the instalment Number 03 to 07 21/02/1994 i.e. prior to the scheduled date. (68 days before).
Sale Deed was executed on 19/04/1996 & taken the Possession. However the last installment was paid prior to its scheduled date i.e. on 21/02/1994 & the date of payment was 30/04/1994. (I.e. 68 days before).
Please suggest me that how much amount of tax on capital gain will be paid by me during this financial year, in case I do not invest anywhere else?
And how much tax I will have to pay, if I invest Rupees 20,00,000/- out of the actual total sale price of the plot i.e. Rupees 26,00,000/- in capital gain bonds u/s 54 EC to save tax on capital gains?
Can I get a notice from the Income Tax Department because the plot had been sold at a price less than the circle rate. If yes, how should face those circumstances? Please suggest at the earliest & oblige.
Sir am a retired senior citizen of 70 and I don’t want to foul any game with the Government, sir
Thanks
I have sold a free hold plot in Meerut in November, 2020 which was allotted to me by MDA for Rs. 26,00,000/- though as per circle rate of the plot comes to Rs. 39,60,000/- i.e. @ 13,200/- per Sq. Mt. This was done that I am in need of money & no customers is available in Market. As for this plot I purchased it from MDA at Rs. 1,35,000/- on Instalment but total payment was made to MDA Rs. 2, 06, 867 (all including, principal, Interest and penalty for late payment of Instalments, free hold charges etc.) This one was purchased in 1989 on instalment & Allotted to me 20/11/1989. 1st instalment was made on 30/11/1990. Last instalment was made on 30/04/1994 with interest and penalty etc., on 5 instalment but the last instalment was paid prior to the scheduled date. Sale Deed was executed on 19/04/1996 & Possession taken whenever the last installment was made on 30/04/1994. Please suggest me that what amount of capital gain will be paid by me during this financial year. Am I invest Rs. 20,00,000/- out of the total consideration of Rs, 26,00,000 in capital gain bonds u/s 54 EC to save tax on capital gains? Will I get a notice from the Income tax department for under sale of the plot. Please suggest at the earliest & obliged, sir
Whether Gold Soverign bonds issued by Govt of India which has lock in period of 8year can be claimed for exemption u/s.54EC
Exemption of 50 lacs under Section 54EC or Capital Gains Account Scheme is Overall limit, or exercisable every financial year ? If I invest 50 lacs this financial year, can I again do the same next financial year also while selling another property ?
Exemption under Section 54EC is 50 lacs in total, or per financial year ? If I invest 50 lacs this financial year, can I again claim LTCG next year while selling another property ?
i will be selling one property in october 2020 (with 100% sale amount coming to me in Oct 2020 itself) and another in May 2021 (in this the Agreement to sell will be made in November 2020 with Post dated cheques, and 40% payment will be received by me in FY 2020-21 and 60% in 2021-22). In the first one i am having a capital gain of 15 lacs, and in the second sale i will have another capital gain of 10 lacs. My question is how to avoid the capital gain? Should I buy REC 54EC bond of 15 lac this year and 54EC Bonds 10 lacs next year? would that contravene law as the investment into 54EC bonds is spreading into 2 consecutive years although total bonds purchase is less than 50 lacs in all?
Has the time limit extended further from 30th June 202, in case of investment u/s 54EC.
Thanks for the information provided. I sold residential land on 26.09.2019, which I purchased on 24.10.1996 (22 years back) I want to get Capital gain exemption, hence I want to invest the sale proceeds into capital gain bond. What is the normal time limit for investment? (2) Due to Covid19, any extension of time limit for capital gain investment U/s 54 EC. If so upto whate date. Request your reply by my e mail. Thanks, R.Lakshminarayanan, e mail id : ltenarayanan@gmail.com
very nice sir
thanks for illustrative article
Thanks for the article on section 54EC. My CA friend referred your website to me.
Please keep it up.