The owner of the bonds are the debt holders or creditors of the issuer. These bonds are issued by infrastructure companies that are backed by the government. Hence, the risk factor gets mitigated by buying such bonds. The capital gain bonds are redeemable before maturity. One cannot sell these bonds as they are not listed in the stock exchange. The interest is reduced to 5% p.a. from 6% p.a. and are fully taxable in your hands.
Do you know:
Q1. Who can claim exemption under section 54EC?
Ans. Any Person
Q2. Whether Short Term Capital Asset or Long-Term Capital Asset is eligible for Exemption?
Ans. Long-Term Capital Asset.
Q3. Which specific asset is eligible for exemption?
Ans. Any Long-Term capital asset (being land or building or both)
Q4. Which asset should the taxpayer acquire to avail the benefits of section 54EC?
Ans. Following are the Tax Exemptions bonds available under section 54EC, the taxpayer can acquire any of them or any combination of them to avail the benefits of section 54EC.
· National Highways Authority of India
· Rural Electrification Corporation
· Power Finance Corporation Limited (as notified)
· Indian Railway Finance Corporation Limited (as notified)
Q5. What is the time limit for acquiring such new asset under section 54EC?
Ans. Within 6 months from the date of transfer of Long-Term capital asset but in case of compulsory acquisition from the date of receipt of compensation.
Q6. What is the quantum of Exemption u/s 54EC?
Ans. The amount of investment made in the new asset or capital gain, whichever is lower.
Q7. Can exemption claimed u/s 54EC be revoke in a subsequent year?
Ans. Yes, if the new asset is transferred or it is converted into money or a loan is taken on security of the new asset within 5 years of its acquisition.
Q8. What would be consequences if the exemption is revoked?
Ans. It is going to be taxable in the year in which the default is committed considering it as a long-term capital gain.
