Introduction-
Section 54EC-Capital Gain Exemption on Sale/Transfer of Land/Building or both-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-
- National Highway Authority of India (NHAI)
- Indian Railway Finance Corporation Limited (IRFC)
- Power Finance Corporation Limited (PFC)
Example 1-
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
Example 2-
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-
- This exemption is available for all Assessees.
- The assets transferred should be long term capital assets i.e. land or building or both.
- The specified capital gain bonds should be purchased with in a period for 6 months from the date of sale of assets.
- The maximum amount of capital gain which can be invested in specified capital gain bonds up to Rs. 50.00 lakhs.