Capital gains

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 February 2011 Mr.A has sold an agricultural land for 100 lach.He will get 40 lacs on March 25th and 60 lacs in April .How can he use sec54EC etc. to plan his tax?

Sunil Kr. Sanganeria

Sunil Kr. Sanganeria (Expert)
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15 February 2011 Maximum investment one can make u/s 54EC is 50 lacs.
you can invest 50lacs in bond precribed u/s 54EC within 6 months from the date of transfer.

Querist : Anonymous

Querist : Anonymous (Querist)

15 February 2011 Does the investment have to be made on accrual basis..even if money is not received?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Mr. A can utilize Section 54EC of the Income Tax Act, 1961 to plan his tax on the capital gains from the sale of agricultural land. Here’s how he can proceed given the scenario provided:

### Step-by-Step Plan:

1. **Sale of Agricultural Land:**
- Sale Proceeds: Rs. 100 lakhs
- Payment Schedule: Rs. 40 lakhs received on March 25th and Rs. 60 lakhs to be received in April.

2. **Investment in Specified Bonds (Section 54EC):**
- **Time Limit:** Mr. A needs to invest in specified bonds within 6 months from the date of transfer of the agricultural land. The date of transfer is considered to be the date on which the agreement for sale is executed, not the date of actual receipt of money.
- **Investment Amount:** The maximum amount eligible for exemption under Section 54EC is Rs. 50 lakhs in a financial year.
- **Specified Bonds:** Mr. A should invest in bonds issued by NHAI (National Highways Authority of India) or REC (Rural Electrification Corporation), which have a lock-in period of 5 years.
- **Investment Planning:**
- Since Mr. A will receive Rs. 40 lakhs by March 25th and another Rs. 60 lakhs in April, he can plan his investment accordingly.
- Ideally, he should invest Rs. 50 lakhs in specified bonds within 6 months from the date of transfer to maximize the exemption under Section 54EC.
- He can choose to invest Rs. 40 lakhs immediately upon receipt and another Rs. 10 lakhs from his other funds if required, to meet the maximum limit of Rs. 50 lakhs.

3. **Accrual Basis vs. Receipt of Money:**
- **Investment Requirement:** The investment in specified bonds under Section 54EC needs to be made within 6 months from the date of transfer of the agricultural land. This is irrespective of when the money is actually received.
- **Date of Transfer:** For tax purposes, the date of transfer is critical, and it is based on the execution of the agreement for sale, not the receipt of money. Therefore, Mr. A should ensure the investment is made within the stipulated time frame from the date of agreement for sale.

### Conclusion:
Mr. A can effectively use Section 54EC to save tax on the capital gains arising from the sale of agricultural land by investing in specified bonds within 6 months from the date of agreement for sale. The key is to plan the investment based on the date of transfer and ensure compliance with the provisions of Section 54EC to avail the tax exemption benefits. It’s advisable for Mr. A to consult with a tax advisor to optimize his tax planning strategy based on his specific financial situation and the timing of receipts.