Capital gain arising from the transfer of any long term capital asset shall be exempt from tax to the extent such capital gain is invested in the long term specified asset upto Rs. 5000,000 within a period of 6 months after the date of such transfer, provided such asset is not converted or transferred into money within a period of 3 years from the date of its acquisition.

“Long term specified asset” means any bond, redeemable after three years and issued on or after 1-4-2007 by the National Highways Authority of India (NHAI) or by the Rural Electrification Corporation Limited (RECL).

The exemption is available in the following circumstances:
(i) The asset transferred is a long term asset and hence, there is a long term capital gain.
(ii) The assessee has within a period of 6 months after the date of such transfer, invested the capital gain in the long term specified assets.
(iii) The cost of long term specified assets which is considered for the purpose of section 54F shall not be eligible for deduction u/s 80C of the act.
(iv) If the amount of capital gain is equal to or less than the cost of the long term specified assets, the whole of such capital gain shall be exempt.
(v) If the amount of capital gain is more than the cost of the long term specified assets, then the cost of long term specified assets shall be allowed as exemption.

However, the investment made in the long term specified assets by an assessee during any financial year cannot exceed Rs. 5000,000.

If the long term specified asset is transferred or converted into money at any time within a period of three years from the date of its acquisition, the amount of capital gain exempted earlier shall be long term capital gain of the previous year in which such long term specified asset is transferred or converted.

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