Income Tax--Capital Gains

Premature Redemption of Section 54EC Bonds--Whether Permissible

CA. Nisha Bhandari

Recently an issue came before the Delhi High Court in Rakesh Kumar Saini v. Power Finance Corpn. Ltd's case as to whether it is possible to redeem 'Section 54EC Capital Gains tax exemption Bonds' before its maturity period of five years. The learned author highlights the decision of the High court alongwith related statutory provision.

1. Exemption under section 54EC vis-a-vis investment in long-term specified assets

Section 54EC allows deduction in respect of long-term capital gains, if invested in specified bonds. According to section 54EC, deduction is available if--

(i) the long-term capital gain arises from the transfer of long-term capital asset being land or building or both and

(ii) the assessee invests the whole or any part of the capital gains arising from such transfer in long-term specified assets (new asset) within a period of six months after the date of such transfer.

2. Meaning of 'long-term specified asset'

As per Explanation (ba), 'long-term specified asset' for making any investment under this section, --

(i) on or after the 1st day of April, 2007 but before the 1st day of April, 2018, means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 but before the 1st day of April, 2018;

(ii) on or after the 1st day of April, 2018, means any bond, redeemable after five years and issued on or after the 1st day of April, 2018,