When a person sold long term asset in Feb till what time he can invest to claim benefit under sec54EC?

Answer 1

Sec. 54EC grants deduction from taxable capital gains on transfer of a capital asset to the extent of investments in notified bonds within six months from the date of transfer of such asset. There has been an amendment to Sec. 54EC restricting the available bonds to those issued by the National Highways Authority of India and Rural Electrification Corporation with effect from April 1, 2006. These bonds were also required to be notified so as to take effect from April 1, 2006. Those who had not made the investments before March 31, 2006, though the permissible time of six months had not expired by that date, were in for a shock because the new bonds were not notified on April 1, while the old bonds were ineligible under Sec. 54EC on or after April 1, 2006. Those who had invested before March 31, even before the expiry of six months, in the earlier bonds will have no difficulty. But for those for whom the time limit was expiring without the new bonds being available, it was expected that along with the notification of the new bonds, the Board would also relax the time limit for reinvestment, so that the taxpayers do not lose the concession merely because of the delay in notification. This hope has not been belied in the long-awaited notification vide No. 142 and 143 of 2006 dated June 29, 2006. A Press note issued by the Press Information Bureau dated June 30, 2006, refers to these notifications, which extend the time limit for re-investment in the new bonds, removing the hardship arising out of delayed notifications, by relaxing the time limit by exercise of the power vested in the Board. The Board has now issued an order under Sec. 119(2)(c) extending the time limit for making investments for the two classes of persons as indicated below: 1. Those who had transferred a long-term capital asset between September 29, 2005, and December 31, 2005, that is, where the capital gains arose in calendar year 2005 after September 29, 2005, can make investments up to September 30, 2006. They are getting the extended time irrespective of the fact that six months' period from the date of transfer might have expired. The choice of the date September 29, 2005, is apparently because any sale prior to this date would mean that the period of six months had expired even by March 31, 2006, before the restriction had set in. 2. Those who had transferred the long-term capital asset between January 1, 2006, and June 30, 2006, can invest in these bonds till December 31, 2006. In other words, the time available for those, who had transferred the capital asset on January 1, 2006, will be December 31, 2006, same as for those transferring on June 30, 2006. Both extensions are therefore even more liberal than what is strictly warranted by the delay in issue of notifications. But then, there is a risk of the bonds not being available after some time, if taxpayers delay their investments. This is because the notification for the National Highways Authority of India limits the issue to Rs. 1,500 crore, while for bonds issued by the Rural Electrification Corporation, the limit is Rs. 4,500 crore. Once the collections made by them cross the limits, further investment in these bonds will not be possible, so that this relief will not then be available. It is for this reason that the application from the Rural Electrification Corporation clearly provides that these bonds issued on a private placement basis have a ceiling of Rs. 4,500 crore during the financial year 2006-07, so that excess subscriptions will not be accepted. Excess subscriptions received will be returned with interest at 5.5 per cent. If a taxpayer merely deposits the amounts through banks or any of the branches and it is later found that the limit has been exceeded, he will be losing the benefit of this deduction under Sec. 54EC. Obviously, the available bonds will be issued on a first-come-first-served basis. The notifications cover only bonds issued during 2006-07, so that those who have capital gains after October 1 will have to make sure that they subscribe to the bonds, if they are still available even before the expiry of six months. In view of these constraints, the benefit of Sec. 54EC may not be available for all as it makes it available for a limited period. The application form has another problem already highlighted in these columns. Nomination is provided only for individuals, while application is entertained from Hindu Undivided Families as well. In the event of the karta pre-deceasing the date of maturity, there is the problem of redemption. It is necessary that in such cases the application form provides for details of other coparceners, so that the maturity amount may be paid to others collectively or on authorisation from them to anyone of the coparceners. Otherwise, the Hindu Undivided Families will have difficulty in redeeming the bonds making the two institutions beneficiaries of any delay in redemption, since there is no provision for payment of interest in such cases after the date of redemption.