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 How do I claim tax exemption under 54F?

REC to issue more capital gains bonds
December, 28th 2006

The Finance Ministry has allowed Rural Electrification Corporation Ltd (REC) to issue capital gains tax exemption bonds for Rs 3,500 crore. REC can now issue these additional bonds between December 27 and March 31 next year.

Investments in such bonds would allow an investor to claim tax benefits under Section 54EC of the Income-Tax Act. This provision allows tax exemption on the capital gains arising from the transfer of a long-term asset so long as such gains are invested in notified bonds.

Currently, there are no bonds available that investors could subscribe to for availing 54EC benefits. REC and the National Highways Authority of India (NHAI) have so far issued capital gains tax exemption bonds for Rs 4,500 crore and Rs 1,500 crore respectively in fiscal 2006-07 and these bonds were fully subscribed in August this year.

Time-limit

Meanwhile, the time limit for making investments under Section 54EC has been extended to March 31, 2007. Persons who have transferred their long-term capital asset between September 29, 2005 and September 30, 2006 (both days inclusive) could avail themselves of this facility. The Finance Ministry's latest move to allow REC to issue additional capital gains bonds for Rs 3,500 crore, however, comes with certain conditions. Any person who has invested over Rs 50 lakh in REC and NHAI bonds notified in June 2006 would not be allotted any bonds from the Rs 3,500 crore.

For any other person, the aggregate of investment in the Rs 3,500-crore bonds and the investment, if any, in the earlier offerings of this year should not exceed Rs 50 lakh.

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