Why you should purchase Tax Saving Bond u/s 54EC before 31st March 2018?

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Bond u/s 54EC

Section 54EC is one of the most preferable sections for saving tax arising from transfer of any long term capital gain. Section 54EC doesn’t discriminate. It is available to all the classes of assessee be it Individual, HUF, Company, firm, Trust AOP etc.

As of now, section 54EC grants an exemption if the amount of LTCG is invested within a period of 6 months. In specified long term capital assets. The meaning of specified long term capital assets has been given in explanation to section 54EC to mean specified bonds issued by NHAI/REC with a lock in period of 3 years. Present explanations reads as under:

“(ba) long-term specified asset” for making any investment under this section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956).]

An amendment is proposed in section 54EC whereby the benefit of exemption u/s 54EC is restricted to land & building only. Other long term capital assets are not eligible for exemption u/s 54EC. Further, the lock in period is enhanced from 3 years to 5 years by amending the meaning of “long term specified assets” in explanation to section 54EC.

The relevant part of the Finance Bill-2018 reads as under:

In section 54EC of the Income-tax Act, with effect from the 1st day of April, 2019,

–– (a) in sub-section (1), after the words “long-term capital asset”, the words “, being land or building or both,” shall be inserted;

— (b) in the Explanation occurring after sub-section (3), for clause (ba), the following clause shall be substituted, namely:––

 

‘(ba) “long-term specified asset” for making any investment under this section,–– (i) on or after the 1st day of April, 2007 but before the 1st day of April, 2018, means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 but before the 1st day of April, 2018; (ii) on or after the 1st day of April, 2018, means any bond, redeemable after five years and issued on or after the 1st day of April, 2018, by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 or any other bond notified in the Official Gazette by the Central Government in this behalf.’

Now, the question arises whether the 5 years lock in period is applicable only for the capital gain accruing in the FY 2018-19. Or it is applicable also for the capital gain accruing in FY 2017-18. But investment is done on or after 01.04.2018?

Going by the above amendment, it may be noted that

  1. All capital gain accruing in the FY 2018-19. Will have to compulsorily have a lock in period of 5 years for exemption u/s 54EC.
  2. As far as capital gain accruing in the FY 2017-18, the meaning of specified long term capital assets would be bond (a) with a lock in period of 3 years if investment is done before 01.04.2018 & (b) with a lock in period of 5 years if investment is done on or after 01.04.2018.

To some extent, it is a retrospective amendment. As the lock in period of 3 years is extended to 5 years. Even in respect of capital gain accruing in the FY 2017-18. And investment is done after 31st March 2018 though within a period of 6 months . Only option to avoid the rigor of 5 years lock in period is
“Invest the amount of LTCG in specified bonds issued by NHAI/REC on or before 31st March 2018”.

-CA Naresh Jakhotia


About Author

CA Naresh Jakhotia
CA Naresh Jakhotia

Name: CA Naresh Jakhotia- The Author is practicing

Chartered Accountant and is associated as a partner of M/s. SSRPN & Co., Nagpur.(www.ssrpn.com)

email: nareshjakhotia@gmail.com

 

 

 

 


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