54ec long term capital gains tax exemption in case of death

Tax queries 9632 views 11 replies

Kapil Tiwari

Senior Export Executive

449 Points Joined May 2012

An individual, Mr.X, sold a plot of vacant land and in order to claim exemption of long term capital gains tax, invested Rs.50 lakhs in 54EC tax saving bonds of NHAI and REC. The bonds have a lock-in period of 3 years. Within 3 years, the bonds cannot be transferred or converted or sold in order to claim the tax exemption.

Now, if Mr.X expires within one year of investing in the 3-year bonds, will the tax exemption still be available, provided the bonds are not transferred or converted or sold? Should the bonds continue to remain in the name of Mr.X for additional 2 years (even after death) to complete the 3-year lock-in period? Is this legally allowed?

Or, do the bonds have to be transferred/transmitted to the nominee of Mr.X (after his death) and the nominee does not transfer/convert/sell the bonds until the 3-year lock-in period is complete?

The worry is that transfer/transmission of the 3-year 54EC bonds to the nominee within one year may amount to not holding the bonds for the compulsory 3 years and hence capital gains tax will have to be paid.

Kindly advise what is the best course of action. Thanks.

Replies (11)

Guest

As pet the
INFORMATION MEMORANDUM

Of REC

TRANSFERABILITY OF BONDS

To avail the benefit under Section 54EC of the Income Tax Act, 1961, the investment made in the Bonds needs to be held for a period of at least three years from the Deemed Date of Allotment. The Bonds are for tenure of 3 years and are NON TRANSFERABLE NON NEGOTIBLE and cannot be offered as a security for any loan or advance. However, Transmission of the Bonds to the legal heirs in case of death of the Bondholder/Beneficiary to the Bonds is allowed.

sagar parakh

Group 2 Cleared

317 Points Joined November 2012

Yes..its a matter of transmission not transfer...

kishan

Account Asst.

33 Points Joined June 2012

since its a transmission therefore there is no breach of rules regarding 3 yr lock in period.

Mihir

Wealth Manager

5293 Points Joined December 2008

Agree with Ms Madhavi. Bonds can be trasmiitted in the name of the nominee on the event of the death of the bondholder. The interest accrued from the bond after the date of transmission shall be taxable in the hands of the nominee. The nominee shall hold the bonds till maturity, and then may redeem it.

The following documents will have to be submitted

# Original bond certificate.

# Original/attested Copy of Death certificate

# Attested copy of identity & address proof of Nominee

# Signature and bank account details of Nominee duly attested by his/her banker with bank seal in original.

# Copy of passbook attested by banker.

# Copy of PAN card of Nominee.

# Request leter signed by the Nominee.

Rajesh M Patel

CA Student

54 Points Joined July 2013

Sir,

It means that incase of death, nominee receiving the possestion of property all time conditions will be vallied

Valerian Dsouza

Manager Audit & Taxation

413 Points Joined August 2007

Any way, amount invested in 54EC bonds can not be redeemed before 3 years, nominee might as well prefer to retain them in the name of deceased holder.

If nominee & late Mr. X is having joint banking account, then it may be a better option.

Kapil Tiwari

Senior Export Executive

449 Points Joined May 2012

Thank you Madam Madhavi Pandit and Sirs, Mr. Sagar Parakh, Mr. Kishan, Mr. Mihir, Mr. Rajesh Patel, Mr. Valerian Dsouza.

I have understood that the transmission of the bonds to the nominee is NOT TRANSFER, and that the nominee can hold it in his name until the lock-in period of 3 years is complete.

I wish to understand if this transmission of the bonds to the nominee, on the death of the original bond holder, is compulsory/mandatory or whether there is an option that the bonds may continue to be held in the name of the original bond holder (as suggested by Mr. Valerian Dsouza) for the entire lock-in period of 3 years, even after the death of the original bond holder. Kindly advise.

Ehab Abdul Rahman Shariff

2 Points Joined March 2018

Sir i have a related query, my farther sold a house in March 2017 and invested the capital gain in LTCG scheme with an intention to buy another residential house, but he passed away before he could buy, i would like to know the process i am in the nominee in the LTCG account but want to know if we can claim tax exeption and how should we proceed in this case, should all legal heirs claim tax exemption or only the nominee can do it.

If Transmission Procedure is not followed, will the maturity proceeds be automatically credited to the deceased account at maturity ? Who will discharge the certificate at maturity in this case ? Can this be done by Nominee ?

Read more at: https://www.caclubindia.com/forum/54ec-long-term-capital-gains-tax-exemption-in-case-of-death-281561.asp?message=MESSAGE%20MODIFIED