Invest in the long term specified asset and get long term capital gain exempt under section 54EE of the Income Tax Act
In case there is a long term capital gain, and the assessee invests the amount into a long term specified asset, then, such assessee would be eligible to avail exemption under section 54EE of the Income Tax Act provided all the other conditions are satisfied. The exemption provisions of section 54EE are taken up and explained in the current article.
Page Contents
- Circumstances under which exemption is available under section 54EE
- Amount of exemption available under section 54EE of Income Tax Act
- Lock-in period of newly acquired long term specified asset under Section 54EE
- Consequences if long-term specified asset is transferred within lock-in period of 3 years [Section 54EE(2)]
- Extract of Section 54EE of Income Tax Act, 1961
Circumstances under which exemption is available under section 54EE
In order to avail exemption under section 54EE, the assessee is required to satisfy the following norms –
1. The assessee should have earned a capital gain on account of transfer of a . Meaning thereby, the exemption is not available on the transfer of a short term capital asset.
2. The assessee has invested (whole or part) of the capital gain in the long term specified asset. The long term specified asset here means units of funds, as notified by the Government, issued before 1st April 2019.
3. The investment into a long term specified asset is to be made within a period of six months from the date of transfer.
4. The investment in the long term specified asset, during any financial year, doesn’t exceed INR 50 Lakhs.
5. The total investment made in the long term specified asset (from capital gain arising on transfer of one or more long term capital asset) doesn’t exceed INR 50 Lakhs during the financial year in which the long term capital asset is transferred and also in the subsequent financial year.
Amount of exemption available under section 54EE of Income Tax Act
On satisfying all the above criteria, the assessee would be eligible to avail exemption under section 54EE to the extented of lower of the following amounts –
1. Amount of capital gain invested into long term specified asset; or
2. INR 50 Lakhs
The maximum amount that can be invested is Rs. 50 lakh.
Lock-in period of newly acquired long term specified asset under Section 54EE
As seen, in order to claim the exemption under section 54EE, the assessee is required to invest into ‘long term specified asset’. There is a lock-in period of three years on the amount invested into the long term specified asset. It means that the assessee cannot transfer or convert the long term specified asset for a period of three years.
Consequences if long-term specified asset is transferred within lock-in period of 3 years [Section 54EE(2)]
In case the assessee transfers or converts the long term specified asset before the lock-in period of three years. Then, the exemption claimed under section 54EE would be deemed to be income chargeable under the head ‘Capital Gain’ in the previous year in which transfer/ conversion has taken place.
Extract of Section 54EE of Income Tax Act, 1961
Capital gain not to be charged on investment in units of a specified fund.
54EE. (1) Where the capital gain arises from the transfer of a long-term capital asset (herein 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, namely:—
(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, 2016, in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees:
Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from the transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees.
(2) Where the long-term specified asset is transferred by the assessee 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.
Explanation 1.—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 transferred such specified asset on the date on which such loan or advance is taken.
Explanation 2.—For the purposes 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” means a unit or units, issued before the 1st day of April, 2019, of such fund as may be notified by the Central Government in this behalf.
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Till date no unit has been issued thus this section is of no use now and it was just an exemption for name sake wherein no units have been announced by government
Please send me list of Fund for exemption under section 54EE
Can you give the list of instruments available in the market, for investment under section 54EE?
I have sold my residential property om 13.09.2019 and invested in HDFC mutual funds and SBI mutual funds will it be allowed to deducted from the long term capital gain?
I have sold my residential property with shops on the ground floor, in April’2019 and bought 2 lands with the amount recieved. I am building house on both lands seperately. Am I eligible for exemption under sec 54 of Income tax act??