Profits earned from the sale of capital assets are subject to capital gains taxation. However, investing the profits in particular assets is one way to avoid this tax. Usually, this is referred to as a capital gains exemption. We will go into great detail about one such exemption provided under Section 54EC.
A taxpayer may elect to invest in specific bonds in order to receive capital gain exemption under Section 54EC when they sell long-term immovable property (land or building). Section 54EC bonds, sometimes referred to as capital gain bonds, are fixed income instruments that offer investors the section 54EC capital gains tax exemption.
In order for the taxpayer to be exempt under Section 54EC, they have to fulfill the subsequent requirements:
Any taxpayer, including individuals, corporations, LLPs, firms, Hindu Undivided Families (HUFs), and others, may claim the exemption under Section 54EC.
Land, buildings, or both should be considered long-term capital assets when they are being sold. If the taxpayer has owned the asset for a minimum of 24 months before the sale, it is regarded as long-term.
Within six months of the transfer date, the taxpayer is required to invest the capital gains.
The investment ought to be made in bonds issued by the Indian Railway Finance Corporation (IRFC) Limited, the National Highways Authority of India (NHAI), the Rural Electrification Corporation (REC), or Power Finance Corporation Limited (PFC).
During the current fiscal year and the one after, the total amount invested cannot exceed INR 50 lakhs.
Bonds issued by Rural Electrification Corporation Limited (REC),
Bonds issued by the National Highway Authority of India (NHAI),
PFC bonds, also known as Power Finance Corporation Limited,
Bonds issued by Indian Railway Finance Corporation Limited (IRFC).
The investment must be made within six months of the date the immovable property was sold in order to qualify for the tax exemption.
This type of investment is only redeemable after five years. The bonds could be redeemed within three years prior to April 2018.
Only long-term capital gains from the sale of immovable property (i.e., land or buildings) are eligible for the investment exemption.
The exemption is available up to a Rs 50 lakh maximum.
The stock exchange does not list these bonds. As a result, you can purchase them directly from the issuer in both physical and demat form. Let's examine how to purchase the bonds indicated above:
Step 1: Download the respective bond Form from here –
Step 2: On the download page, select "direct."
Step 3: Choose how many forms to download.
Step 4: Download after completing the captcha.
Step 5: A ZIP file containing the form downloads.
Step 6: Extract the form by unzipping it.
Step 7: Print the form and complete it according to the guidelines provided.
Step 8: Investors should visit the designated branches of the collecting banks, Axis Bank, Canara Bank, State Bank of India, HDFC Bank, ICICI Bank, IDBI Bank, IndusInd Bank, or Yes Bank, with the required enclosures and either a demand draft or account payee check.
Step 9: You can also use NEFT or RTGS to directly deposit the funds into the appropriate collection account. Fill out the application forms as instructed on the website, making sure to include the UTR number in the designated space.