According to section 54EC, any person (individuals, HUFs, partnership firms, companies etc.) can avail exemption in respect of long-term capital gains (arising from the sale of long term capital asset other than equity shares and securities), if the capital gain is invested in Capital Gain bonds. The exemption will be the amount of capital gain or the amount of investment made, whichever is less. Interest rate offered on these bonds is 6% per annum. The exemption is subject to:
- The investment is made within a period of 6 months from the date of transfer of the asset
- Lock-in-period of 5 years
- Bonds sold, transferred or converted into money or any loan or advance taken on security of such bond within a period of 3 years from the date of acquisition, the capital gains earlier exempt are taxable in the year of sale or transfer of the bonds
- Maximum investment limit of up to Rs. 50 Lakhs in a Financial Year per individual.
- If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.