IRFC Capital bonds are being issued as ‘Long term specified assets’ within the meaning of Sub- Section 54-EC of the Income Tax Act, 1961. Those desirous of availing exemption from capital gains tax under Section 54 EC may invest in these bonds. Capital gains arising from transfer of Long-term capital assets can be invested in these bonds within a period of six months from the date of transfer of the asset for getting exemption from the capital gains tax.

The benefit under section 54EC can be availed of only if there is an income from a capital asset, being long-term in nature. Long-term capital gains are the profit that a person makes when he sells any capital asset (for example, any immovable property, jewellery or shares) which he has held for a period exceeding three years. An exception is his holding of shares in which the holding period has been fixed at one year.

Any person (including NRI out of NRO account on a non-repatriable basis) and Hindu undivided family (HUF), through its Karta, can make investments (not exceeding Rs 50 lakh in a given financial year) in the two bonds notified by the Government of India. In case only part investment is made, the amount of deduction gets reduced in proportion to the investment.

The Government of India has approved Indian Railways Finance Corporation Ltd. (IRFC) to issue these bonds.

• IRFC List of Bank Branch-   Click Here

• IRFC Details- Click Here

• IRFC 54 EC Capital Gain Bonds Form Click Here

What are the provisions of Section 54EC?

As per provisions of Income Tax Act, 1961, any long term capital gains arising from transfer of any capital asset would be exempt from tax under section 54EC of the Act if: The entire capital gain realized is invested within 6 months of the date of transfer in eligible bonds. Such investment is held for 3 years. To avail of capital gain exemption, the bonds so acquired cannot be transferred or converted into money or any loan or advance can be taken on security of such bond within 3 years from date of acquisition else, the benefit would be withdrawn If the amount invested in bonds is less than the capital gains realized, only proportionate capital gains would be exempt from tax.

Sec 54EC As per Income Tax Act

52[Capital gain not to be charged on investment in certain bonds.

54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 :

53[Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees.]

(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head “Capital gains” relating to long-term capital asset of the previous year in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.

Explanation.—In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted (otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken.

54[(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),—

(a) a deduction from the amount of income-tax with reference to such cost shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;

(b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.]

Explanation.—For the purposes of this section,—

(a) “cost”, in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset;

55[(b) “long-term specified asset” for making any investment under this section during the period commencing from the 1st day of April, 2006 and ending with the 31st day of March, 2007, means any bond, redeemable after three years and issued on or after the 1st day of April, 2006, but on or before the 31st day of March, 2007,—

(i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 (68 of 1988);

(ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956 (1 of 1956), (iii) PFC and (iv) IRFC.

and notified56 by the Central Government in the Official Gazette for the purposes of this section with such conditions (including the condition for providing a limit on the amount of investment by an assessee in such bond) as it thinks fit:]

57[Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions specified in the notification, by the Central Government in the Official Gazette under the provisions of clause (b) as they stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed to be a bond notified under this clause;]

58[(ba) “long-term specified asset” for making any investment under this section on or after the 1st day of April, 2007 means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the Power Finance Corporation Ltd [PFC], Indian Railway Finance Corporation Ltd. [IRFC], National Highways Authority of India [NHAI], Rural Electrification Corporation Limited[REC], a company formed and registered under the Companies Act, 1956 (1 of 1956).