Section 54EC of The Income Tax Act

Definition of ‘Capital Asset’ is contained underneath section 2(14) of the Income Tax Act, 1961. As per the said section, the capital belongings capacity property of any form held by way of the person, whether the identifier is connected with his business or occupation or no longer connected with his enterprise or profession.

On the foundation of the above definition, it can be concluded that capital belongings encompass property of any form whether or not movable or immovable, tangible or intangible, constant or circulating. Some of the examples of capital belongings are land, building, plant and machinery, motor car, jewellery, furniture, patent, trademarks, share, debentures etc.

Above definition of capital, the property does now not consist of following –

  • Stock-in-trade, consumable stores, raw-material which has been held for the cause of commercial enterprise or profession;
  • Movable property held for non-public use through the person or any structured member;
  • Agricultural land positioned in a rural area;
  • 6.5% gold bond or 7% gold bond or countrywide protection gold bond issued by the Central Government;
  • Special bearer bond;
  • Gold credit score bond as issued beneath gold credit scheme.

On the basis of the acquisition length of the capital assets, the equal is divided into two parts, namely long-term capital belongings and temporary capital assets. Long-term capital property is belongings which are held by way of the individual for a duration of extra than 3 years from the date of purchase, however, the said duration would be extra than 12 months in case of shares. On the different hand, nonpermanent capital belongings are belongings which are held through the person for the length of fewer than 3 years from the date of purchase, however, the said length would be less than 12 months in case of shares.

In case the long-term capital asset has transferred the reap bobbing up out of the equation is recognized as a long-term capital gain. The long-term capital belongings typically attract 20% tax. There is a sure exemption reachable towards long-term capital gain. Exemption available in opposition to long-term capital obtain is furnished below sections 54, area 54EC, area 54F and section 54B of the Income Tax Act, 1961.

Current article highlights exemption as handy against the switch of long-term capital property underneath area 54EC of the Income Tax Act, 1961.

Section 54EC provides that capital gain should now not be charged in case the long-term capital gain is invested insure bonds. The simple feature of area 54EC are summarized hereunder –

  • The exemption beneath section 54EC is on hand solely in case of transfer of long-term capital assets.
  • The person has invested entire or any part of capital attain within a length of 6 months from the date of transfer;
  • The investment is done in long-term precise assets;
  • With impact from the monetary 12 months 2018-2019, the exemption accessible below part 54EC of the Income Tax Act, 1961 has been constrained only in case of capital obtain bobbing up from the switch of long-term capital assets being a transfer of land or building or both. It needs to be mentioned here that, the previous exemption was on hand on the switch of any assets, however, with effect from the financial 12 months 2018-2019 exemption underneath section 54EC is available only in case of the switch of long-term capital belongings being land or building or both;
  • Long-term precise belongings are required to be held for a minimal length of three years. With effect from the monetary 12 months 2018-2019, the duration of three years has been extended to the length of 5 years;
  • Long-term specified belongings on the basis of which exemption below area 54EC has been claimed are in addition not eligible for deduction below part 80C.

Long Term Specified Assets

The exemption under part 54EC of the Income Tax Act, 1961 is on hand in case the long-term capital achieve is invested in the long-term distinct assets. It is indispensable to apprehend the coverage / which means of lengthy time period particular assets.

Longtime period exact assets mean any bond redeemable after a length of three years (5 years from financial 12 months 2018-2019). The said bonds ought to have been issued on or after 1st April 2000. Qualifying bonds are listed hereunder –

  • Bonds issued by way of the National Bank for Agriculture and Rural Development hooked up underneath part 3 of the National Bank for Agriculture and Rural Development Act, 1981; or
  • Bonds issued via the National Highways Authority of India constituted beneath part 3 of the National Highways Authority of India Act, 1988; or
  • Bonds issued by using Rural Electrification Corporation; or
  • Bonds issued via Power Finance Corporation Limited (Government has notified that stated bonds issued on or after fifteenth June 2017) (notification no. 47/2017 dated 8th June 2017); or
  • Bonds issued by way of Indian Railway Finance Corporation (Government has notified that stated bonds issued on or after eighth August 2017) (notification no. 79/2017 dated 8th August 2017.

Amount of Exemption Available Under Section 54EC

The exemption is handy underneath section 54EC of the Income Tax Act to the extent of capital obtain as invested in the longtime period specified assets. However, the most restriction is INR 50 Lakhs.

The consequence of Transfer of Long Term Specified Assets

In case the long-term certain property are transferred/converted into money inside a period of three years (5 years from monetary 12 months 2018-2019) from the date of its acquisition, the amount exempted under section 54EC shall be deemed to be lengthy-term capital attain in the previous 12 months in which the lengthy time period certain belongings i.e. the bonds are transferred.

It should be cited that as per the clarification contained in area 54EC in case the individual takes any mortgage or advances on the safety of such distinct assets, it would be deemed that the identity has been converted into money on the date on which such mortgage or advances is taken and taxed accordingly.

 

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