54ec on depreciable assets

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Shankar Iyer (Querist)
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20 August 2015 A partnership firm has sold their depreciable asset ie shop and Rs50 lacs from the proceeds have been invested in nhai bonds. However I am unable to fill it in the return. If I take the capital gain as short term, deduction under 54ec is not possible. If i take it as long term, it charges tax at 20% which is on long term gain but it should be charged at 30% as it is a firm
Please help me on this
Thanks

Shankar Iyer

Shankar Iyer (Querist)
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15 June 2016 No reply yet

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 In the case of a partnership firm selling a depreciable asset (like a shop) and investing a portion of the proceeds in NHAI bonds, the tax implications are as follows:

### 1. Classification of Capital Gains:

- **Short Term Capital Gains (STCG):**
- If the asset is held for less than 36 months before sale, the gains are classified as short term.
- Short term capital gains are taxed at the applicable income tax slab rates of the partnership firm.

- **Long Term Capital Gains (LTCG):**
- If the asset is held for 36 months or more before sale, the gains are classified as long term.
- Long term capital gains are taxed at a flat rate of 20% with indexation benefit.

### 2. Section 54EC Deduction:

- **Applicability:** Section 54EC allows deduction from long term capital gains if the proceeds are invested in specified bonds (like NHAI bonds) within six months from the date of sale.
- **Restriction:** This deduction is not available for short term capital gains.

### 3. Taxation for Partnership Firms:

- **Tax Rate:** Partnership firms are taxed at a flat rate of 30% on their total income, including capital gains.

### Strategy to Optimize Tax:

Given the scenario you've described:

- **Investment in NHAI Bonds:** If Rs. 50 lakhs from the sale proceeds of the shop is invested in NHAI bonds and the remaining amount is treated as capital gains:

- **Long Term Capital Gains:** If the shop was held for more than 36 months, classify the gains as long term.
- **Tax Calculation:** Compute the tax on long term capital gains at 20%.
- **Deduction under Section 54EC:** Utilize the deduction under Section 54EC for the amount invested in NHAI bonds, if applicable.

- **Short Term Capital Gains:** If the shop was held for 36 months or less, the gains are short term and cannot benefit from Section 54EC deduction.

### Example Scenario:

- Assume the total gain from the sale of the shop is Rs. 1 crore.
- If Rs. 50 lakhs is invested in NHAI bonds within six months, treat Rs. 50 lakhs as long term capital gains eligible for the 20% tax rate with Section 54EC benefit.
- The remaining Rs. 50 lakhs (if treated as short term) would be taxed at the partnership firm's applicable income tax slab rates.

### Conclusion:

- **File in Tax Return:** In your tax return, clearly segregate the capital gains as short term or long term based on the holding period of the asset.
- **Consultation:** Given the complexities involved, especially with respect to partnership firm taxation and capital gains, consulting with a tax advisor or Chartered Accountant is recommended to ensure compliance and optimize tax benefits.

If you need further assistance or have specific questions, feel free to ask for clarification!

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