If you’re thinking about selling a long-term capital asset like land or a building to make some money, it might be a joyful decision. However, it’s crucial to understand that this joy is accompanied by the responsibility of paying capital gains tax imposed by the income tax department. So, whether it’s land, a building, or both that you’re selling, you’ll need to calculate the capital gains and pay the applicable tax. Fortunately, when you transfer a long-term asset, there’s an opportunity for capital gain exemption by investing in Bonds under section 54EC of the Income Tax Act.
What is Section 54EC?
Section 54EC is a capital gain exemption under the Income Tax Act to the taxpayer who is selling their long-term capital asset like land, building, or both. They can invest the capital gain amount into the specific bonds issued by the Govt. of India and can save the tax. The bonds specified by the Govt. of India are:
- National Highway Authority of India (NHAI)
- Rural Electrification Corp. Ltd. (REC)
- Power Finance Corporation (PFC)
- Indian Railways Finance Corporation(IRFC)
Who can claim an exemption under Section 54EC of Income Tax Act?
A taxpayer can claim an exemption u/s 54EC if they fulfill all the below conditions:
- Any assessee can claim exemption u/s 54EC. Therefore, an Individual, HUF, Company, LLP, Firm, etc can claim this exemption
- The asset sold is a Long Term Capital Asset (LTCA) being land or building or both. Moreover, the asset is long-term in nature if the taxpayer holds it for at least 24 months before selling.
- The taxpayer invests the Capital Gains amount in Bonds within 6 months from the date of the transfer
- Taxpayer invests in 54EC bonds of the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), or any other bonds notified by the Central Government.
- The investment amount can not be more than INR 50 lakhs during the current and succeeding financial year.
What is the amount of exemption available under Section 54EC of Income Tax Act?
As mentioned above, the Amount of Exemption under Section 54EC will be the least of the following:
- The Cost of NHAI/REC Bonds OR
- The Capital Gains on the sale of land or building
Example: Jay sold land in FY 2023-24 for INR 60,00,000. It was purchased in FY 2018-19 for INR 30,00,000. Further, Jay purchased NHAI bonds for INR 45,00,000 in FY 2023-24. Jay will be able to claim a deduction under section 54EC as follows:
| Particulars | Amount (INR) |
| Sales Consideration | 60,00,000 |
| Less: Indexed cost of acquisition (30,00,000*348/280) | (37,28,571) |
| Long Term Capital Gain | 22,71,429 |
| Investment in NHAI Bonds | 45,00,000 |
| Section 54EC Exemption amount | 22,71,429 |
Reporting of Section 54EC in ITR
The ITR Form under which the taxpayer needs to report income from capital gains includes ITR-2 and ITR-3. Taxpayers must report income from capital gains on the sale of land, buildings, or both under Schedule CG of the ITR. Further, If the taxpayer is claiming exemption under section 54EC they should report the same in ITR as described below:
What happens to exemption if the taxpayer sells the 54EC Bonds?
If the taxpayer claims an exemption under Section 54EC of the Income Tax Act and sold the bond within a lock in period of 5 years or more then there can be different taxability for the same:
Situation 1: When the taxpayer sells the bond within 5 years from the date of purchase
Consequences: The exemption under Section 54EC is withdrawn. The amount of exemption that the taxpayer avails will be reduced from the cost of the asset. Thus, Capital Gains will be the total sales value minus the cost of the asset.
Situation 2: When the taxpayer sells the bond after 5 years from the date of purchase
Consequences: The exemption under Section 54EC is not withdrawn. A taxpayer will be able to claim the index cost of acquisition while calculating Capital Gains on bonds sold.
FAQs
No, The Benefit of investing in CGAS is not available under section 54EC. The taxpayer needs to invest in bonds within 6 months from the date of the transfer of the asset.
Yes, NRI is eligible to claim exemption u/s 54EC of the Income Tax Act, provided that the land or building sold is situated in India.
Long-Term Capital Assets (LTCA) are subject to special tax rates. Immovable assets like land and buildings attract a tax rate of 20%, which includes indexation.
A minimum investment of Rs.10,000 is required for purchasing a single 54EC bond.
No, 54EC bonds can not be transferred to any other person.
as per the recent budget announced : the limit is capped to 10 crores ! what is this regarding ? can u pls clarify ?
Hi @HIREiN,
The capital gain exemption limit capped to ₹10 crores is applicable to only section 54 and section 54F.
However, for section 54EC the maximum exemption available is ₹50 lakhs during the financial year.
Hope it helps.
Hi @Sachin1
For exemption under section 54EC, the gains should arise from land or building or both, and the gains should be invested in 54EC bonds (such as NHAI, REC, PFC, IRFC, or any other bonds notified by the Central Government) within 6 months from the date of sale of immovable property.
The maximum exemption available under section 54EC is ₹50 lakhs.
Hi @Vinay_R,
Yes, you can take exemption under section 54EC on the sale of land or building or both being LTCA, which does not include STCA and from the sale of its proceeds, you purchase bonds of NHAI or REC. If conditions satisfied.
There’s no particular provision mentioned for slum sales u/s 54EC.
Hi @Vinay_R,
Yes, the Slump Sale proceeds (50B) can be invested in 50EC.
Hi @someguy,
If you sell a residential house property and from its sale proceeds, acquire another residential house property, then section 54 will be applicable, if conditions are satisfied.
If you sell any long-term capital assets and reinvest the profits on specific capital gain bonds like REC, NHAI, etc. then section 54EC is applicable, if conditions are satisfied.
The process can be done online and offline both, here’s the link for REC, PFC, IRFC bonds for your refernce.
Hi @Supraja_Narasimhan
As per your stated situation, it’s not compulsory to purchase 4 separate bonds, irrespective of the number of sale deeds, you can as well invest in a particular bond.
The point is that you can claim the amount of exemption the same as your capital gains, then it is up to you to invest in any number of bonds. Conditions are applicable.
Hope this clarifies.
Hi @DravidM
Yes, the proceeds from a slump sale can be invested in Section 54EC bonds.
Under the provisions of the Income Tax Act, the benefit of Slump sale is available under sections 54EE, 54F, and 54EC.
This benefit is available if the entire amount of capital gains is invested in a residential property within the specified time frame.
Here’s the link for REC , PFC , IRFC bonds for your refernce. These bonds have a lock-in period of three years.
However, in a slump sale, the entire value is considered as a whole and is not separately calculated for land or building.
Hi @kbaliyan
This does not sound right. Please re-try entering the same dates on Quicko or the Utility, it should accept these dates as you have invested within the time frame of 6 months.
Hi @kbaliyan
You can raise a grievance on the income tax e-filing portal to the ITD regarding the same.