Section 54EC of the income tax Act includes a provision that provides exemption toward long-term Capital gains arising from the transfer of Land or building when a specific amount is invested in Bonds.
Let’s take a look at the various provisions under Section 54EC.
The provisions under section 54EC are mentioned below:
|Land or building or both. This should be a long-term capital asset
|Capital Gain Investment
|Long-term specified asset
Under the Income Tax Act 1961, Section 2 (14), capital assets are any kind of property held by a person related to business use or otherwise. These assets include properties that are movable or immovable, fixed, circulating, tangible or intangible. Some of the most popular capital assets are land, car, building, furniture, trademarks, patents, plant, Debentures.
The assets mentioned below are not considered as capital assets anymore:
Talk to our investment specialist
The explanation of the long-term specified asset is mentioned under sub-section ‘ba’ of section 54EC effective from April 1, 2019. It depends on the period of investment.
The exemption on bonds issued on or after April 1, 2007, but before April 1, 2018, are by the specifics mentioned below:
According to the Finance Act, 2017, land or building or both for over a period of 24 months can qualify as a long-term capital asset.
The Finance Act of 2018 has extended the time period to 5 years.
Long- and short-term asset are classified on the Basis of the time period after purchase to before being sold. Assets held for less than 3 years are considered as short-term assets. Assets held for 3 years or more are long-term assets.
Short-term capital assets, give the seller short-term capital gains in case of transfer whereas long-term capital assets provide long-term gains when transferred.
The important points to remember under Section 54EC is mentioned below:
The cost of a long-term specified asset, not less than capital gain from the transfer of an asset, will not be charged under section 45. If the capital gain of a specified asset worth Rs. 50 lakhs is Rs. 40 lakhs, it will not be charged to capital gain.
If the cost of the long-term asset is less than capital gain from the transfer of the asset, the acquisition cost will not be charged under section 45. If the cost of an asset is Rs. 50 lakhs but the capital gain is Rs. 60 lakhs, the balance of Rs. 10 lakhs are chargeable. Here is the cost of the asset is not chargeable.
Remember that the cost of an asset should not exceed Rs. 50 lakhs for getting the benefit.
In order to get the benefit under Section 54EC, meet all the mentioned criteria and be a registered taxpayer.