exemption under Section 54

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 March 2011 I gaines approx Rs20000 as long term gain by selling shares in July 2010.

If I invest this Rs20000 in the bonds of REC or NHAI now which provide exemption under section 54, then do I need to pay long term tax on Rs20000 ?

Please note that it is approximately 8 months now that I sold the shares. Would I still get the exemption even if I invest the capital gain in REC or NHAI bonds beyond 6 months time after the sale of shares.

CA KRISHNA KUMAR DARUKA

CA KRISHNA KUMAR DARUKA (Expert)
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03 March 2011 As per Section 54EC Investment in specified assets should be done within 6 months from the date of transfer of assets.

Querist : Anonymous

Querist : Anonymous (Querist)

03 March 2011 It is not clear what is meant by "transfer of asset". As the capital gain is not from a property but from a share. Is 6 months condition still applies ?

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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21 July 2024 Under Section 54 of the Income Tax Act, 1961, you can claim an exemption from long-term capital gains tax if you invest the proceeds from the sale of a residential property in certain specified bonds. Here's how it applies to your situation where you've earned long-term capital gains from the sale of shares:

### Understanding Section 54 Exemption:

1. **Nature of Exemption**:
- Section 54 allows exemption from long-term capital gains tax arising from the sale of a residential property if the capital gains are reinvested in specified bonds within the stipulated time frame.

2. **Application to Shares vs Property**:
- The exemption under Section 54 specifically applies to capital gains arising from the sale of a residential property, not shares or other assets.
- Therefore, if you have earned capital gains from the sale of shares, you cannot directly claim exemption under Section 54 by investing in REC or NHAI bonds.

3. **Transfer of Asset**:
- In the context of Section 54, "transfer of asset" refers to the sale of a residential property. The exemption under this section is meant to encourage reinvestment of proceeds from the sale of such property into another residential property or specified bonds to defer tax liability on capital gains.

4. **Investment in Bonds (REC/NHAI)**:
- Bonds issued by REC (Rural Electrification Corporation) or NHAI (National Highways Authority of India) are eligible for investment under Section 54EC for exemption from capital gains tax.
- To claim this exemption:
- You must invest the capital gains amount (from the sale of a residential property) in these specified bonds within 6 months of the property sale.
- The maximum investment limit in these bonds in a financial year is ₹50 lakhs.

5. **Time Limit and Conditions**:
- Since your capital gains are from shares and not a residential property, the conditions and time limits under Section 54 do not apply directly to your situation.
- The 6-month timeframe and conditions related to "transfer of asset" (which is a residential property in this context) do not apply to shares or other assets.

### Conclusion:

Based on the information provided:
- If your capital gains are from the sale of shares, you cannot claim exemption under Section 54 by investing in REC or NHAI bonds.
- You will need to calculate and pay long-term capital gains tax on the gains earned from the sale of shares as per the applicable tax rates and provisions for capital gains on shares.

For specific tax planning related to your investments and capital gains, it is advisable to consult with a qualified tax advisor or chartered accountant who can provide personalized advice based on your financial circumstances and the latest tax regulations.