What is Section 54EC of Income Tax Act?

Sec 54EC of Income Tax Act in India provides for exemption from capital gains tax on long-term capital gains arising from the sale of certain assets if the proceeds are invested in specified bonds within a specified time frame. Here are the key points:

Section 54 EC of Income Tax Act applies to long-term capital gains arising from the sale of a long-term capital asset, such as land, building, or any other asset other than a residential house property.

• To avail of the exemption, the taxpayer must invest the capital gains amount in bonds issued by NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation) within six months from the date of transfer of the original asset.

• The investment in specified bonds has a lock-in period of three years. The maximum investment eligible for exemption under Section 54EC is capped at ₹50 lakhs in a financial year.

• The amount of capital gains exempted under Section 54EC is limited to the amount invested in the specified bonds. If the investment in the bonds is less than the capital gains amount, the exemption will be proportionately reduced.

• If the entire capital gains amount is not invested in the specified bonds within the prescribed time frame, the unutilised portion will be taxable in the year of transfer of the original asset.

Section 54EC does not apply to long-term capital gains arising from the sale of a residential house property. For such gains, taxpayers can avail of exemptions under other sections like Section 54 or Section 54F. This is what is 54ec of the Income Tax Act.

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Sec 54EC of Income Tax Act in India provides for exemption from capital gains tax on long-term capital gains arising from the sale of certain assets if the proceeds are invested in specified bonds within a specified time frame. Here are the key points:

Section 54 EC of Income Tax Act applies to long-term capital gains arising from the sale of a long-term capital asset, such as land, building, or any other asset other than a residential house property.

• To avail of the exemption, the taxpayer must invest the capital gains amount in bonds issued by NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation) within six months from the date of transfer of the original asset.

• The investment in specified bonds has a lock-in period of three years. The maximum investment eligible for exemption under Section 54EC is capped at ₹50 lakhs in a financial year.

• The amount of capital gains exempted under Section 54EC is limited to the amount invested in the specified bonds. If the investment in the bonds is less than the capital gains amount, the exemption will be proportionately reduced.

• If the entire capital gains amount is not invested in the specified bonds within the prescribed time frame, the unutilised portion will be taxable in the year of transfer of the original asset.

Section 54EC does not apply to long-term capital gains arising from the sale of a residential house property. For such gains, taxpayers can avail of exemptions under other sections like Section 54 or Section 54F. This is what is 54ec of the Income Tax Act.

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I enquired about what is section 54EC of income tax act, from my tax consultant. He informed me that by investing the earnings from the sale of a long-term capital asset in certain capital gain bonds, individuals can invest in long-term capital gains and claim tax exemptions under Section 54EC of the Income Tax Act, which lowers their tax burden. 

What is section 54EC of income tax act and Who can claim 54EC exemption?

According to ITA Section 54EC, if an investor receives profits from selling a long-term capital asset, such as shares or real estate, and invests them in long-term defined assets within six months of the sale date, the capital gains are excluded from taxation. The maximum amount that can be invested in these bonds in any given fiscal year is Rs. 50,00,000.

• Only gains from the transfer of long-term capital assets are subject to exemptions under Section 54EC.

• A portion or all of the capital gains must be invested within six months of the asset transfer date.

• Only investments in the designated long-term assets are eligible for the benefit.

Gains achieved from the sale of long-term capital assets are referred to as long-term capital gains. Long term capital gains tax, sometimes known as LTCG tax, is imposed on this. Sections 54, 54B, 54EC, and Section 54F of the Income Tax Act of 1961 do, however, provide for some exemptions. Only the transfer of long-term capital assets, especially land, and buildings, is covered by the exemption provided by Section 54EC as of FY 2018–19. 

What are the eligibility criteria of property tax savings in 54EC?

After fulfilling the requirements listed below, taxpayers are eligible for the tax benefits provided by Section 54EC of the Income Tax Act:

• People must invest in long-term capital assets, and the earnings from such investments must be long-term capital gains.

• Investors must invest in that long-term capital asset after 1st April 2000.

• The proceeds from the sale of long-term capital assets, whether in full or in part, must be used to purchase long-term capital-specified assets.

According to Section 54EC, individuals are required to invest in the following capital gain bonds:

• Bonds issued by the Rural Electrification Corporation Limited (REC)

• Bonds issued by the NHAI, or National Highway Authority of India 

• Bonds issued by SIDBI, the Small Industries Development Bank of India 

• Bonds issued by the National Housing Bank 

• Bonds issued by PFC, or Power Finance Corporation Limited

• Bonds issued by the IRFC, or Indian Railway Finance Corporation Limited

These bonds are issued by infrastructure companies that are supported by the government and as a result carry less risk. These bonds can be redeemed by private individuals before they mature. Additionally, because these bonds are not listed, individuals are not permitted to sell them.

I’d like to conclude my answer here about what is section 54EC of income tax act. I hope this helps:)

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