Capital Gains Tax Exemption under Section 54EC

✅ What is Section 54EC?

Section 54EC of the Income Tax Act provides exemption from long-term capital gains tax if the gains are reinvested in specified capital gain bonds issued by certain institutions.

🏠 Eligible Capital Assets

  • Only long-term capital gains (LTCG) from the sale of land or building or both (residential or commercial) are eligible.
  • The asset must be held for at least 24 months prior to sale.

🧾 Conditions for Exemption

  1. Invest in Notified Bonds:
    • Investment must be made in specified bonds notified by the Central Government.
    • Currently eligible bonds:
      • REC (Rural Electrification Corporation)
      • NHAI (National Highways Authority of India)
  2. Investment Time Limit:
    • Investment must be made within 6 months from the date of sale/transfer.
  3. Maximum Investment Limit:
    • ₹50 lakhs per financial year per assessee (individual, HUF, company, etc.)
  4. Lock-in Period:
    • Bonds have a lock-in period of 5 years (increased from 3 years in 2018).
    • Premature transfer or conversion will lead to withdrawal of exemption.

💸 Tax Benefits

  • The amount of capital gain invested in 54EC bonds is exempt from tax.
  • Example:
    • LTCG on sale of land = ₹40 lakhs
    • Investment in REC bonds = ₹40 lakhs
    • Entire LTCG of ₹40 lakhs becomes tax-free under Section 54EC
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📊 Important Notes

ParticularsDetails
Applicable toSale of land/building (LTCG only)
Bonds availableNHAI, REC
Max. investment limit₹50 lakhs in a financial year
Time to investWithin 6 months from sale
Lock-in period5 years
Transferability of bondsNot transferable or tradable
Interest on bonds~5.00% p.a. (taxable)

⚠️ Key Cautions

  • Do not delay: Investing even one day after 6 months voids the exemption.
  • Check bond availability: These are usually open for subscription periodically.
  • Interest earned is taxable as “Income from Other Sources”.

📝 How to Invest in 54EC Bonds

  1. Visit the official websites of REC or NHAI.
  2. Fill out the bond application form online or offline.
  3. Submit documents:
    • PAN card
    • Proof of capital gain
    • Bank details
  4. Make payment via cheque, DD, or online transfer.

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