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Exemption Under Section 54EC

Published Date: 04-Mar-2020 04:01 PM

Capital Asset:

Capital Asset includes property of any kind, whether movable or immovable, tangible or intangible, fixed or circulating. Some of the examples of Capital assets are land, building, plant and machinery, motor car, jewelry, furniture, patent, trademarks, share, debentures, etc.

Capital Asset does not include the following:-

  1. Stock in Trade, consumable stores, the raw material which has been held for the purpose of business or profession.
  2. Movable property held for personal use by the person or any dependent member.
  3. Agricultural land located in a rural area.
  4. 6.5% gold bond or 7% gold bond or national defense gold bond issued by the Central Government.
  5. Special bearer bond.
  6. Gold deposit bond as issued under the gold deposit scheme.

Types of Capital Assets:

  1. Long term Capital Assets:  Long term Capital Assets are the assets which are held by the individual for the period of more than three years from the date of purchase; however, the said period would be more than 12 months in case of listed shares, 24 months in case of land, building or both and unlisted shares.
  2. Short term Capital Assets: Short term Capital Assets are the assets which are other than long term capital assets 

Taxability:

Gain arising from the transfer of Long term capital Assets is known as long term capital gain. The long term capital assets generally attract 20% tax. There is a certain exemption available against long term capital gain. Exemption available against long term capital gain is provided under sections 54, Section 54EC, section54F, and section 54B of the income tax,1961.

Section 54 EC:

Section 54EC provides that capital gain should not be charged in case the long-term capital gain is invested in certain bonds.

Basic features of section 54EC are summarized below:

  1. Exemption under section 54EC is available only in case of transfer of long term capital assets.
  2. The individual has invested whole or any part of capital gain within a period of 6 months from the date of transfer.
  3. The investment is made in long term specified assets.
  4. With effect from FY 2018-19, the exemption available under section 54EC of the Income Tax Act, 1961, has been restricted only in case of capital gain arising from the transfer of long term capital assets being the transfer of land and building or both. It must be noted here that the earlier exemption was available on the transfer of any assets, however, with effect from the FY 2018-19 exemption under section 54EC is available only in case of transfer of long term capital assets being land or building or both.
  5. Long term specified assets are required to be held for a minimum period of 3 years .with effect from the FY 2018-19, the period of 3 years has been increased to a period of 5 years.
  6. The long term specified assets based on which exemption under section 54EC has been claimed are further not eligible for deduction under section 80C. 

The long term specified assets means any bond redeemable after a period of 3 years (5 Years from the financial year 2018-2019). The said bonds should have been issued on or after 1st April 2000.

Qualifying bonds are listed here under :

  1. Bonds issued by the National Highways Authority of India; or
  2. Bonds issued by Rural Electrification Corporation; or

Amount of Exemption Available Under section 54 EC :

The exemption is available under section 54EC of the Income Tax Act to the extent of capital gain is invested in long term specified assets. However, the maximum limit is INR 50 Lakhs.

If you need any assistance in the calculation of capital gains and its taxability, feel free to reach us at contact@msassociates.pro or call us on 080-41633750 or 9880542668.