Long Term Capital Gains

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samir thakkar (Querist)
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02 March 2010 Dear Sir,
My questions are as under :
1. U/S 54EC regarding investment in bonds. The limit is Rs.50 Lakhs per year. My client has got a LTCG of Rs. 1 crore. Can he invest Rs. 50 lacs before 31st March and Rs. 50 lacs after 31st March to get the full exemption of Rs. 1 crore ?
2. If he purchases a residential flat, can it be rented ? and if yes, the rental income will be taxed under which head of income ?
I'll appreciate a quick answer from your side. Thanks. You can also mail me at samirthakkarca@gmail.com Thanks, Regards,
Samir Thakkar.

Guest

Guest (Expert)

02 March 2010 Mr. Samri,
For the First Question,The Section 54 EC states that,

The capital gain arises from the transfer of a long-term capital asset and the assessee has, AT ANY TIME within a period of SIX months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset.

Provided, that investment during ANY Financial Year should not exceed Rs. 50 Lacs

Following Circular is also important:
Notification No 380/2006, dated 22-12-2006

In exercise of the powers conferred by sub-clause (ii) of clause (b) of the Explanation to section 54EC of the Income-tax Act,1961 (43 of 1961), the Central Government hereby notifies the bonds for an amount of Rupees three thousand five hundred crores (redeemable after three years) to be issued by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), during the period from 26th day of December, 2006 to 31th day of March, 2007 (both days inclusive), as 'long-term specified asset' for the purposes of the said section subject to the following conditions, namely:-

(i) a person who has made an investment of an amount aggregating more than fifty lakhs rupees in the bonds notified as long-term specified asset by the Central Government for the purposes of section 54EC of the Income-tax Act 1961 (43 of 1961) in the Official Gazette vide notification number S.O. 963(E), dated the 29lh June, 2006 or notification number S.O. 964(E), dated the 29th June, 2006, shall not be allotted any bonds notified as long-term specified asset by this notification;

(ii) a person who is not covered by clause (i), shall not be allotted the bonds notified as long-term specified asset' by this notification, for any amount which exceeds the amount of fifty lakhs rupees as reduced by the aggregate of the investment, if any, made by him in the bonds notified as long-term specified asset' by the Central Government for the purposes of section 54EC of the Income-tax Act 1961 (43 of 1961) in the Official Gazette vide notification number S.O. 963(E), dated the 29th June, 2006 or notification number S.O. 964(E), dated the 29th June, 2006.

The above nofication is with respect to Bonds of REC.. But I couldnt find any such circulars with respect to other bonds recognised as long-term specified asset.

In my view, for the additional 50lacs amout you may not be given bonds. This is because, the section clearly states that, The aggregate amount shouldnot exceed 50 Lacs in any financial Year.

So I conclude that, even if the financial years are different, but within in the ambit of 6 months, CG invested should not exceed 50 Lacs.

Please other experts guide me if i interpreted wrongly.

Guest

Guest (Expert)

02 March 2010 For the 2nd Question,

If the Assessee purchased a residential house, from such CG,to get exemption u/s 54F
The following points have to be noted,
the assessee should not,

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property.]

So as per the Sec 54, the new asset bought inconnection with the CG, can be letout. The section doenot prohibit such letout.

Experts please guide me in this regard

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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02 March 2010 Relief is in respect of capital gains during the financial year, so that the ceiling of Rs.50/-lakhs should apply,whether made in the same financial year or within six months of transfer in the next financial year.

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