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54F - Exemption - Capital Gains

S. Krishnamoorthy (Director) (61 Points)

01 December 2010

A sold his unlisted private company equity shares for a total amount of Rs.110 lakhs. As there is no indexation benefit, he deposited Rs.50 lakhs in REC Bonds. Out of the balance amount, he proposes to invest Rs,..40 lakhs in a residential property and pay capital gains tax @ 20.6% on the net balance amount of Rs.20 lakhs. Is this correct? If not, what is the correct position? Has he to invest the entire sale consideration of Rs.110 lakhs in a residential property to save the CGT?

S. Krishnamoorthy

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12 Replies

Sunshine (Helping All) (10575 Points)
Replied 01 December 2010

to gain benefit of exemption u/s 54F the assessee has to deposit the amount from the sale consideration of sale of long term capital asset and has to purchase or construct residential house property only within the specified time...bonds wont qualify for exemption...assesse will have to deposit the whole amount of sale consideration to get the long term capital gain fully exempt in SBI capital gain account and invest it in a residential house property..

regards,

Sneha

Rahul Agarwal (Future CA) (217 Points)
Replied 01 December 2010

I dont agree with Sneha,

Mr. Krishnamoorthy,

you dont have to invest the total 110 lacs in a residential property.

U can invest 50 lacs in REC bonds and 40 Lacs to purchase a residential property.

Ur perception is totally right.

Regards,

Rahul

Please consult experts before taking final decision.

Sunshine (Helping All) (10575 Points)
Replied 01 December 2010

is investment in bonds allowed under sec 54F???

i would request experts to answer...

Sunshine (Helping All) (10575 Points)
Replied 03 December 2010

can someone clarify??

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 03 December 2010

It's better if you invest Rs. 50 Lacs in REC or NHAI Bonds and the balance of Rs. 60 Lacs can be invested in Resedential Property. Moreover by investing the whole balance amount of Rs. 60 Lacs in Residential Property you won't be free from CGT. As Partial investment of whole sale price in Residential Property to claim exemption u/s 54F applies to get proportionate exemption from CGT. It is Illustrated as below:

Total Sale Price Rs. 110 Lacs

Exemption u/s 54EC by investing in REC or NHAI Bonds Rs. 50 Lacs

Balance Rs. 60 Lacs (Invested in Residential Property) - Partial Sale price is invested so you are liable to pay some Capital Gain Tax, calculated as follows:

Total Tax on balance amount i.e. Rs. 60 Lacs @ 20% - Rs. 12 Lacs

Partial Investment made in Residential Property i.e. Rs. 60 Lacs out of Rs. 110 Lacs (Sale Price)

CGT Payable = 1200000 x 6000000

11000000

= Rs. 654545 + 3% (Rs. 19636) = Rs. 674181 /-

C.Balaji (Learner) (1867 Points)
Replied 10 December 2010

Dear Friend...

Sec 54F - Entire Sale consideration has to be invested to escape from Capital Gains tax... In this case if you dont want to pay Capital Gains tax invest the entire sale consideration in a Res. house within the specified period...

Sec 54EC - Exemption if the amount is invested in REC or NHAI bonds with in 6 months from the date of sale... SEc 54F does not deal with Bonds....

If you invest Rs.50 lacs in Bonds and 60 lacs in Res house... You will be standing in a postion to pay tax without money in your hand... so it is better to plan how to make the invesment and which is the right way.........

CA Puneet Dham (CA) (694 Points)
Replied 11 December 2010

Originally posted by : Sneha.... sunshine
	to gain benefit of exemption u/s 54F the assessee has to deposit the amount from the sale consideration of sale of long term capital asset and has to purchase or construct residential house property only within the specified time...bonds wont qualify for exemption...assesse will have to deposit the whole amount of sale consideration to get the long term capital gain fully exempt in SBI capital gain account and invest it in a residential house property.. regards, Sneha

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 11 December 2010

Bonds won't qualify for exemption u/s 54F. For that investment bonds qualify for exemption u/s 54EC. You can get the exemption from both Sec 54F and Sec 54EC by partial investment which i have already illustrated before.

Rgards,

Rahul

Suraj S (Audit Executive) (335 Points)
Replied 16 December 2010

Rahul bhai is absolutely correct........

sankit shah (PRactice) (30 Points)
Replied 17 December 2010

i sold my office and earned long term capital gain rs.50 lakhs. i have already one house property, can i invest another house property and get exemption u/s 54.

plz. reply fast

C.Balaji (Learner) (1867 Points)
Replied 18 December 2010

i could not understand your query clearly.... But

Sec 54 - Sale of Residential House and Investment in Purchase or Construction of Residential House....

Lifins Financial (Owner) (41 Points)
Replied 08 April 2011

REC / NHAI 54EC Capital Gains Tax Exemption Bonds -2011-2012 Application Form

For More Details and investment

visit on www.lifins.in or call on 9822403407

- Lifins Financial, Pune, Maharashtra, India.

A] Rural Electrification Corporation (REC)

About Company:

Rural Electrification Corporation (REC), was incorporated on July 25, 1969 under the Companies Act 1956. REC is a wholly owned Government of India Public Sector Enterprise with a net worth of over Rs. 11104.25 Crore as on 31-03-2010. Its main objective is to finance and promote rural electrification projects all over the country besides providing assistance for generation projects, transmission and distribution projects. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them.

B] National Highways Authority of India (NHAI)

About Company:

The National Highways Authority of India was constituted by an act of Parliament, the National Highways Authority of India Act, 1988. It is responsible for the development, maintenance and management of National Highways entrusted to it and for matters connected or incidental thereto. The Authority was operationalized in February, 1995 with the appointment of full time Chairman and other Members.

National Highways Authority of India (NHAI) is mandated to implement National Highways Development Project (NHDP) which is

· India 's Largest ever highways project

· World class roads with uninterrupted traffic flow

The National Highways have a total length of 70934 km to serve as the arterial network of the country. The development of National Highways is the responsibility of the Government of India.

Salient Features:

v Interest payment: Annual

v Coupon rate : 6.00% payable annually.

v Interest Payment: Payable on 31st March

v Maturity: 3 years from Deemed Date of Allotment

v Redemption: Bullet, at the time of Maturity after 3 years

v Credit Rating : “ AAA/Stable” by CRISIL and “ AAA(ind)(Affirmed)” by Fitch Ratings

v Face Value: Rs. 10000/- per Bond

v Issue price : Rs. 10000/- per Bond

v Minimum application size : 1 Bond of Rs. 10,000/-

v Maximum application size: 500 Bonds of Rs. 10,000/- each

v subject to fulfilment of other conditions as specified in Income Tax Act.