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Exemption-u-s-54EC-Long-term-Capital-Gain-on-Sale-Transfer-of-Land-or-Building-or-both

 

Exemption u/s 54EC: Long term Capital Gain on Sale/Transfer of Land or Building or both

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Introduction about (Section 54EC)-

When a land or building or both are sold at a price above the cost of acquisition, it is called capital gain or if the said assets (land or building) is sold at a price less than its acquisition cost, i.e. capital loss. If any capital gain arises on sale of land/building, then the seller will be liable to pay income-tax on capital gain. Capital Gain may be Long Term or Short Term. 


Section 54EC gives relief to a taxpayer for long term assets i.e. land/building, if he sells the said assets, the capital gain arise on sale of land/building, can invest into long term bonds, maximum up to Rs. 50.00 lakhs, having lock in period of 5 years w.e.f 01.04.2018, within 6 months from the date of transfer/sale of assets.


We can invest the long-term capital gain amount, in the bonds which are issued by the following entities-

  1. National Highway Authority of India (NHAI)
  2. Indian Railway Finance Corporation Limited (IRFC)
  3. Power Finance Corporation Limited (PFC)

 

For Example-

If, Mr. X, has long term capital gain of Rs. 65,00,000 during the financial year 2018-19, against sale of land/building, how much amount, he can invest under section 54EC?

Answer-

Mr. X, can invest maximum of Rs. 50,00,000 under section 54EC, in the specified long term capital bonds having lock in period of 5 years.

 

Sale Consideration - Indexed Cost of Acquisition – Indexed cost of Improvement


For Example-

Mr. X Purchase a House on 25.06.2013 at a price of Rs. 25,00,000, Stamp duty paid Rs. 1,50,000. He also expensed Rs. 3,00,000 on his improvement on 15.07.2013. Mr. X sold the above house at a price of Rs. 50,00,000 on 15.07.2018. How to calculate the indexed cost of acquisition or cost of improvement.

Cost of Inflation Index is as under-

2013-14               220

2014-15               240

2015-16               254

2016-17               264

2017-18               272

2018-19               280

Answer-

Mr. X sold his house on 15.07.2017 or purchase on 25.03.2013 i.e. Long term capital gain, so cost will be Indexed as under-

 

(A) Cost of Acquisition-                 Cost Price / Index for the year of purchase X Index for the year of sale  

Rs. 26,50,000 / 220 x 280 = 33,72,727

(B) Cost of Improvement-            Cost of Improvement / Index for the year of improvement X Index for the year of sale

Rs. 3,00,000 / 220 x 272 = 3,70,909

 

Total Cost (C) {A+B}                       Rs. 33,72,727 + 3,70,909 = 37,43,636

Sale Consideration (D)                  Rs. 50,00,000

Long term Capital Gain (D-C)-    Rs. 50,00,000 – Rs. 37,43,636 = Rs. 12,56,364     

 

Mr. X can Invest Rs. 12,56,364/- into Capital gain Bonds under section 54EC and save tax.

 

Eligibility under section 54EC-

  1. This exemption is available for all Assessees.
  2. The assets transferred should be long term capital assets i.e. land or building or both.
  3. The specified capital gain bonds should be purchased with in a period for 6 months from the date of sale of assets.
  4. The maximum amount of capital gain which can be invested in specified capital gain bonds up to Rs. 50.00 lakhs.
 



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