Section 54EC

Capital gains - Not to be charged on investment in certain bonds

Notified bonds

n In exercise of the powers conferred by sub-clause (i) of clause (b) of the Explanation to section 54EC of the Income-tax Act, 1961, the Central Government hereby notifies the bonds for an amount of Rupees one thousand five hundred crores (redeemable after three years) to be issued by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, during the financial year 2006-07 as ‘long-term specified asset’ for the purpose of the said section—Notification : No. SO 963(E), dated 29-6-2006.

n 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, the Central Government hereby notifies the bonds for an amount of Rupees four 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, during the financial year 2006-07 as ‘long-term specified asset’ for the purpose of the said section—Notification : No. SO 964(E), dated 29-6-2006.

n 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, 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, during the period from 26th day of December, 2006 to 31st 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 lakh 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 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, 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 lakh 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 in the Official Gazette vide  Notification number S.O. 963(E), dated 29th June, 2006 or Notification number S.O. 964(E), dated the 29th June, 2006—Notification : No. SO 2146(E), dated 22-12-2006.

Exemption qua REC/NHAI Bonds - Prior to the amendment to section 54EC by the Finance Act, 2006, ‘long-term specified asset’ for the purposes of said section means any bond redeemable after three years and issued by the National Bank for Agriculture and Rural Development (NABARD), National Highways Authority of India (NHAI), Rural Electrification Corporation Limited (REC), National Housing Bank (NHB), or Small Industries Development Bank of India (SIDBI).

However, after the amendment to said section by the Finance Act, 2006, ‘long term specified asset’ means any bond, redeemable after three years and issued on or after 1-4-2006 by NHAI and REC and notified by the Central Government in the Official Gazette for the purposes of said section. It has been reported by NHAI and REC that, consequent upon this amendment proposed by the Finance Bill, 2006, issue of old bonds was closed on 29-3-2006.

Bonds of NHAI and REC under the amended provision of section 54EC have been notified by the Central Government vide Notification No. SO 963(E) and SO 964(E), dated 29-6-2006 for Rs. 1,500 crores and Rs. 4,500 crores respectively to be issued during financial year 2006-07. It has been informed by REC and NHAI that these bonds will be issued from 1st July, 2006 and 20th July, 2006 respectively.

It has been brought to the notice of the Central Board of Direct Taxes that some persons could not avail of the benefit under section 54EC of the Income-tax Act on account of the non-availability of the capital gain bonds. Further, for some other persons the effective time available for making the investment is less than six months because of non-availability of these bonds.

With a view to removing the hardship caused to taxpayers, the Central Board of Direct Taxes, in exercise of powers conferred by clause (c) of sub-section (2) of section 119, hereby orders that the limitation of six months for making the investment under section 54EC of capital gains arising from the transfer of a long-term capital asset, is extended—

(i) upto 30th September, 2006 in case of persons where the long-term capital asset was transferred between 29-9-2005 and 31-12-2005 (both dates inclusive);

(ii) upto 31st December, 2006 in case of persons where the long-term capital asset was transferred between 1-1-2006 and 30-6-2006 (both dates inclusive)—Order : F.No. 142/09/2006-TPL, dated 30-6-2006.