Capital Gains not chargeable on investment in certain bonds [Section 54EC] under Exemption of capital gains :

Eligible assessee – Any assessee

Conditions to be fulfilled

•  There should be transfer of a long-term capital asset.
•  Such asset can also be a depreciable asset held for more than 36 months.
•  The capital gains arising from such transfer should be invested in a long-term specified asset within 6 months from the date of transfer.
•  Long-term specified asset means specified bonds, redeemable after 3 years, issued by the National Highways Authority of India (NHAI) or the Rural Electrification Corporation Limited (RECL).
•  The assessee should not transfer or convert or avail loan or advance on the security of such bonds for a period of 3 years from the date of acquisition of such bonds.

Other points

•  In case of conversion of capital asset into stock in trade and subsequent sale of stock in trade – period of 6 months to be reckoned from the date of sale of stock in trade for the purpose of section 54EC exemption [CBDT Circular No.791 dated 2-6-2000].
•  Receipt of money on liquidation of company – is chargeable to tax in the hands of shareholders [Section 46(2)] – However, there is no transfer of capital asset in such a case – Therefore, exemption under section 54EC is not available – CIT v. Ruby Trading Co. (P) Ltd. 259 ITR 54 (Raj.)

Quantum of exemption

•  Capital gains or amount invested in specified bonds, whichever is lower.
•  The maximum investment which can be made in bonds of NHAI and RECL, out of capital gains arising from transfer of one or more assets, during the previous year in which the original asset is transferred and in the subsequent financial year cannot exceed Rs.50 lakhs.

Violation of condition

•  In case of transfer or conversion of such bonds or availing loan or advance on security of such bonds before the expiry of 3 years, the capital gain exempted earlier shall be taxed as long-term capital gain in the year of violation of condition.