Capital gain is one of the important sources of income for the purpose of computation income tax. Any profit or gain arising from the transfer of a capital asset made in a previous year is taxable as capital gain under the head “Capital Gains”.

Effective & proper tax planning can helps an Individual in order to save taxes on income earned by them. Therefore, one should take advantages of the in-built exemptions u/s 54B, 54D, and 54EC etc. by making the proper investment arising from the sale of residential house property, purchase of another house or by purchasing the NHAI & REC Bonds. Moreover, individuals should not transfer newly acquired assets within three years from the date of acquisition in order to avail the benefits of exemption.

One can save taxes, if he has earned capital gain on the long term capital asset which has been transferred during the PY, by claiming an exemption u/s 54EC.

The conditions related to Sec 54 EC are as follows:

Asset in respect of which CG is exempted	Who can claim exemption	Which asset should be acquired	Amount of exemption	When can the exemption be withdrawn
Long term capital gain on transfer on any capital asset	Any assessee whether Individual, HUF, Company	Exemption u/s 54EC can be claimed, if the amount of capital gain is invested within six months by the assessee from the date of transfer in infrastructure – related bonds of NHAI or REC.	The investment in bonds cannot exceed of Rs. 50 lakh i.e. the cost of new asset is subject to a max of Rs. 50 Lacs.	If the bonds are pledged, sold transfer before completion of three years from purchase of bonds, then amount of capital gain exempted u/s 54EC earlier shall be deemed to be the income by way of long term capital gains of the previous year.

 Other Relevant Points:

• National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC) are the bonds neither transferable nor negotiable. Also, these cannot be kept as security for loans or advance. However this is a risk-free investment and has no brokerage cost.

• Amount of Exemption – The amount of capital gains generated on transfer of capital asset or the amount of investment in above stated bonds, whichever is lower is eligible as exemption u/s 54EC.

• Lock-in-period – The lock in period of these bonds is 3 years.

Illustration-

On March 10, 2011, X sells gold for Rs. 97, 86, 000 (Cost of acquisition on March 10, 1997: Rs. 4 lacs) Expense on Purchase and transfer are Rs. 100 and Rs. 200 respectively. On March 15, 2011 he acquires NHAI Bonds (Investment being Rs. 50 Lacs). Further he purchases Rs. 30 lacs REC Bonds on April 2011. These Bonds are redeemable after 42 months. Find out amount of exemption u/s 54EC.

Solution:

Particulars	Amount (Rs.)
Sales Consideration	97,86,000
Less: Expenses on Transfer	        (200)
Net Sales Consideration	97,85,800
Less: Indexed Cost of Acquisition (i.e., 4,001,00 *711/305)	 (9,32,692)
Long Term Capital Gains	88,53,108
Less: Exemption u/s 54EC (i.e., 50 Lacs + 30 Lacs)	(80,00,000)
Capital Gain chargeable to tax	8,53,108