Capital gain exemption in section 54EC of income tax act

The property business is on a high now days and people are getting good profits in this business. But often they do not invest it in good place and need to pay high capital gains on these profits. The way to save long term capital gain is to invest the profits in the specified bonds which are also known as section 54EC bonds specially for saving capital gain. Section 54EC of income tax act provides exemption on capital gain if one invests the capital gain amount in these bonds, so they are also called section 54EC bonds.

Under section 54EC of income tax act, the amount of capital gain should be invested with in six months from the date of capital gain arise, to enjoy the exemption under section 54EC of income tax act. There is no percentage but the all the amount is exempted which is invested in 54EC bonds but the upper limit for investment is Rs. 50 lakh per year presently.

There is a case which comes to Mumbai Tribunal recently in which an assessee sold his shares for the worth of 2.2 crores and invested 2.1 crores in Section 54EC of income tax act. Out of this amount, Rs. 45 lakh was invested on the date 30 August 2005 whereas the sale of shares date was 24 February 2005.

The assessee made a claim of exemption under section 54EC of income tax act of Rs. 45 Lakhs. The tax officer however after examines the case ruled out the exemption because the officer feels that the investment is made after 6 months from the time when capital gain arise. The assessee appeals with the fact that he sold the shares of a private limited company and transfer only took place after directors of board approves the transfer.  The approval was granted by board of directors on 28 February, so it’s right to invest within six months, the capital gain amount to avail the exemption.

The appellate authority rejects the assessee case as payment of stamp duty date should be treated the sale of shares date as the shares prices are trend to variation going up and down.
 The assessee appeals second time to the tribunal submitting that the shares sold was of private limited company and hence there is no question to vary of shares prices and moreover, the shares prices are decided many days before actual execution of the sale.

 The Tribunal noted that for the shares, the transfer is completed only after the approval from the board of directors. So the tribunal gives the decision in favour of assessee. Also tribunal states that the six months period should be according to British colander and in this case, the confirmation from the buyer and board of director approval comes on February 28, so it’s right to invest the amount in six months which is up to 31 august.

So the investment made in section 54EC bonds on august 30 is as per the provisions of the act, and the exemption should be allowed to the assessee.
Tags-capital gain exemption,income tax section 54ec,54ec exemption of income tax act,54ec bonds,income tax section 54ec
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