Exemption under section 54EC of the Income Tax Act is available on Capital Gains on sale of any long term capital asset being land or building or both and invested in NHAI or REC Bonds. The amount of Exemption under Section 54EC will be lower of:
The Cost of NHAI/REC Bonds,
The Capital Gains on the sale of land or building.
A taxpayer can claim this Capital Gains Exemption while filing ITR in that particular financial year. The taxpayer needs to file ITR-2. And 31st July of the next financial year is the due date to file ITR. However, for FY 19-20 the due date to file ITR is 10th January 2021.
Example:Jay sold land in FY 2019-20 for Rs. 60,00,000. It was purchased in FY 2013-14 for Rs. 30,00,000. And Jay purchased NHAI bonds for Rs. 45,00,000 in FY 2019-20. Jay will be able to claim deduction under section 54EC as follows:
Less: Index Cost of Acquisition (30,00,000*289/220)
The lock-in period of 5 years is applicable when exemption u/s 54EC of the income tax act is claimed. And the following situations can arise:
When bonds are sold within 5 years from the date of purchase.
Consequences: The exemption u/s 54EC is withdrawn. And the amount of exemption availed will be reduced from the cost of the asset. And Capital Gains will be the total sales value minus the cost of the asset.
When bonds are sold after 5 years from the date of purchase.
Consequences: The exemption u/s 54EC is not withdrawn. A taxpayer will be able to claim the index cost of acquisition while calculating Capital Gains on bonds sold.