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.

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.

Read Also:-

1 Exemption under section 54GB of Income Tax Act 1961
2 Section 54GA Exemption under Income Tax Act, 1961
3 Capital gain exemption under section 54G of Income Tax Act, 1961
4 Section 54F Capital Gain Tax Exemption
5 Section 54EE Tax Exemption on long term capital gain
6 Section 54EC Exemption available on investment in certain specified bonds
7 Section 54D Exemption from capital gain on compulsory acquisition of land or buildings forming part of industrial undertaking
8 Exemption from capital gain on transfer of agricultural land – Section 54B
9 Exemption available under section 54 of Income Tax Act

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