As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would taxable unless specifically exempted.
Type of capital gains that can be saved:
One cannot save Short-term capital gains tax but one can save long-term capital gains. If someone sells a residential house and invest that capital gain in another one, he can easily save tax. But he has to invest that capital gain within two years from the date of sale.
If one fails to purchase the property before filling Income Tax Return, he requires transferring the money in capital gain account scheme (CGAS). If someone sells any other asset like gold, commercial property, land, etc. he can save tax by investing the money earned in a residential house. But he will have to sell full consideration, not only capital gain.
If someone is not willing to purchase a residential property, he can invest money in capital gains bond scheme. If he wants to invest Rs 50 lakh in one financial year, he has to invest the same within six months of the sale.
Provisions of Section 54EC of the Act:
As provided in Section 54EC of the Income Tax Act, 1961 any capital gain arising out of the transfer of any long term capital asset and the assessee has within six months after the date of the transfer, invested the whole or any part of capital gains in some specified bonds.
Thus, according to the provisions of the Income Tax Act, 1961, any long term capital gains arising out of sale of of any capital asset are exempted from tax under section 54EC of the Act if the following conditions are fulfilled:
1. The capital gain is invested within 6 months of the date of transfer in Capital Gain Bonds;
2. The assessee holds the investment for a period of minimum 3 years;
3. To avail this exemption, the bonds cannot be transferred or cannot be transformed into money within 3 years from date of acquisition failing which one is not entitled to avail this benefit ;
4. If the amount invested in bonds is less than the capital gain, only proportionate capital gains are exempted from tax.
Bonds eligible under Section 54 EC of the Income Tax Act:
The eligible bonds under Section 54 EC of the Income Tax Act are RECL (Rural Electrification Corporation Ltd) and NHAI (National Highways Authority of India).
Maximum investment limit:
The maximum investment limit of the investment in these bonds is Rs. 50 Lakhs for Financial Year.
Rate of interest in case of these bonds:
The interest rate for these types of bonds is 6% per year.
