Changes proposed in 54EC deductions in the new Income Tax Bill:

 

1. As per the provisions of the Income Tax Act, 1961, the exemption for reinvestment of capital gains was conditioned on the sale of a “long‑term capital asset” (as provided under Section 54EC).

2. Hon Supreme Court’s decision in CIT v. Dempo Company Ltd (2016) interpreted this provision in a manner that allowed even depreciable assets-whose gains might be computed as “short‑term” under the provisions of Section 50 of the Income Tax Act-to qualify for the exemption, provided they were held for more than 36 months.

3. In essence, the Court’s reading extended the benefit to transactions that, despite generating short-term gains under a specialized computation rule, were in substance long-term assets.

4. The new Income Tax Bill 2025, however, revises the statutory language in Section 85 by substituting the term “long‑term capital asset” with “long‑term capital gain.” This change is legally significant because it shifts the focus from the nature of the asset to the nature of the gain realized on its sale.

5. Section 85 of the new Income Tax Bill 2025 is a legislative corrective measure. It explicitly restricts the exemption for reinvestment of capital gains to only those gains that are classified as “long‑term” under the statute and thereby restricts benefit of reinvestment is erstwhile 54EC Bonds to depreciable assets.