As you may recollect, under section 54EC gains on sale of capital assets such as property are exempt from tax provided you meet certain specified conditions.
These provisions include
a) you have been holding the property for more than 3 years (termed as long term capital gains);
b) the gains are invested in specified bonds issued by REC / NHAI within a period of 6 months from the date of sale; and
c) the investment in these bonds in any financial year does not exceed Rs.50 lakhs.
The wording ‘in any financial year’ was creating an ambiguity.
A person selling his property between Oct and Mar in any financial year was able to claim tax exemption up to Rs.1 crore. He was investing the capital gains up to a sum of Rs.50 lakhs in the financial year in which he sold the property and the balance gains up to another Rs.50 lakhs in the next financial year. He had to only ensure that both investments were completed within the deadline of 6 months.
This was not the intention of the Govt. when it provided this tax relief.
Accordingly, in its budget for 2014-15, the Govt. has plugged this loophole. An amendment to section 54EC will now state that the investment in the specified capital gains exemption bonds, in the year in which the sale takes place and in the subsequent financial year, will not exceed Rs.50 lakhs.
In other words, the Govt. has removed the ambiguity in the wordings of sec 54EC which was being exploited by the taxpayers.
