Capital gain not to be charged on investment in NHAI and REC bonds.

 1. Applicability of Section 54EC:

Long-term capital gain arises from the transfer of a capital asset [, being land or building or both,]  is exempt under section 54EC if assessee has, at any time within a period of 6 months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset,

Important points to be remembered are:

  1. This Exemption is available to any asseesee (Including NRI)
  2. Assets transferred is Long term capital asset
  3. Investment should be made within 6 months in specified assets

2. Long-term specified asset: means bond redeemable after 3 years

  1. National Highways Authority of India (NHAI)
  2. Rural Electrification Corporation Limited (REL).or
  3. Any Other Bonds issued by the Central Government in this behalf.

3. Exemption Limit:

if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of asset, the whole of such capital gain shall be exempted,

if the cost of the long-term specified asset is less than the capital gain arising from the transfer of 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 exempted:

4. Exemption Amount:

  • Investment made in the long-term specified asset during any financial year does not exceed Rs.50 lakh rupees
  • It is further noted that the investment made, during the financial year and in the subsequent financial year does not exceed Rs.50 lakh rupees.

5. Lock-in Period of Investment:

Where the long-term specified asset is transferred or converted 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 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 into money.

w.e.f. 1-4-2019 “three years”, the words “five years” had been substituted. Which mean lock-in period is increased from 3 years to 5 years.

6. Income tax on interest received on bonds: 

The interest earned on bonds is fully taxable under the head “Income from Other Sources”. Further no TDS would be deducted from the interest.

 

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