Section 50EC: Investment in Certain Bonds [Updated Section ]

Eligible Assessee

1. This section is applicable to Individual or HUF
2. Exemption is allowable for only on Long Term Capital Asset
3. Exemption is applicable for transfer of land , building or both

Bonds eligible for exemption

1. Rural Electrification Corporation Limited or REC bonds,
2. National Highway Authority of India or NHAI bonds,
3. Power Finance Corporation Limited or PFC bonds,
4. Indian Railway Finance Corporation Limited or IRFC bonds.

LTCG exemption by investment in capital gain bonds

1. To avail the tax-exemption the investment must be made within 6 months of the date of sale of immovable property.
2. Such investment can be redeemed only after 5 years.
3. The exemption on investment is allowed only against long term capital gains on sale of immovable property (i.e. sale of land or building).
4. The exemption is available up to a maximum amount of Rs 50 lakh

Example 

Assuming that an immovable property is sold at Rs. 50 lakh after a long term period of 42 months from the date of acquisition. The indexed cost of acquisition is 30lakh and indexed cost of improvement is Rs. 10 lakh. Calculate the capital gain that is taxable after claiming exemption in below two cases:

A. Rs. 10lakh invested in REC bonds within 6 months

B. Rs. 6 lakh invested in NHAI bonds within 6 months

Solution

A. Rs. 10 lakh invested in REC bonds within 6 months

B. Rs.  lakh invested in NHAI bonds within 6 months

Transfer of New Asset

New asset is transferred or converted into money within 5 years from date of acquisition then exempt long term capital gain will be taxable in year of transfer/conversion.