CAPITAL GAIN BOND U/S 54EC Vs CAPITAL GAIN PAYMENT

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We have received this comment on blog post BUY HOUSE SAVE CAPITAL GAIN ON SALE OF HOUSE ,I have replied Girish as required but while replying  We  have noticed that he is not very keen on taking relief given under Section 54EC.So  We have made a comparison between Investment in Capital gain Bond and payment of Capital gain and invest balance money elsewhere.After reading this Analysis it will be helpful to choose between both the product.Before this just look at main features/condition of section 54EC
  1. Long Term Capital Asset:Long term assets means any capital asset held by assessee for more than 3 Years.
  2. If assesee has sold the Long term capital asset during the previous year and made a long term capital gain then he can invest money of capital gain in Capital gain bonds and can save tax on long term capital gain.
  3. Assessee here means all type of assessees,like individual,firm company etc.
  4. Amount to be invested in bonds is only capital gain not net consideration received on sale of long term capital asset
  5. Amount exempted under this section will be amount of capital gain or amount invested in capital gain bond which ever is lower maximum upto 50 Lakh in Financial year.(however in few case 1 Crore can be invested )(Limit restricted to 50 Lakh only wef ay 2015-16)
  6. Maturity Period of bonds is Three years
  7. Capital gain bonds eligible under this section are now can be issued only by REC or NHAI
  8. Bonds can not be pledged ,sold transfer before completion of three years from purchase of bonds ,and in case its transferred then amount capital gain exempted on investment in these bonds will be made taxable in that previous year as Long term capital gain .
  9. Amount of capital gain should be invested in Capital gain bond within 6 Month from date of transfer/sale of capital asset .
so now evaluate two option and take first option 

Investment of Capital gain IN bonds 54EC

Example : On sale of long term asset suppose capital gain amount is 1000000 Rs .

Option-1: Amount of Long term Capital gain Bonds Invested in Capital Gain tax Bond ,Rate of Interest is 6.00 NHAI/REC


On investment of 1000000 rs in Bonds ,tax payout will be Nil and we will get interest 60000@ 6.00p a at the year end ,suppose we will invest 60000 interest received at the First year end and second year end @ 9% per annum annually compound rate, we will get at the following amounts at maturity .

Now Take second Option :Pay Capital gain Tax and Invest balance amount elsewhere .we have calculated the maturity amount at different interest rates compounded annually.The details are given Below on the basic of balance amount invested and amount at maturity at different Interest Rates.





So from the above we can say that if one can invest balance amount after payment of tax in such a way so that annual rate of return is more than 14.65%@ CAGR then it is beneficial to pay tax at one go as compare to investment in capital gain Bond otherwise he should invest in Capital gain bond and take benefit u/s 54EC .Though the rate of interest offered on capital gain Bond is just 6.00% but Internal rate of return (IRR) will come as 14.65(CAGR) due to out go of long term capital gain tax in first year @20 % plus surcharge on long term capital gain.


Now specific answer to his query


I have sold a residential plot recently. I acquired it in 2001 for 6.5 lacs and sold it at 44 lacs in 2008 Oct. I already own a flat from last 3 years. I believe I am not eligible to reduce capital gains under sec 54 or 54F. Not very keen on 54EC. If I want to pay tax on capital gains, how much it will be. Is there a different slab of tax with and without considering the index? Can you please elaborate.



  • Non eligible for section 54:section 54 is available only if long term asset sold is a residentila house property ,so Gisrish has correctly said that sec 54 is not vailable to him,as he has sold land not a residential house property.
  • Non eligible for section 54F:undersection 54F ,person can avail relief from paying long term capital gain tax arises on sale of long term capital asset,if he invest net sale consideration in a house in specefied time ,but he should not own more than one house at the time of transfer of long term asset other than purchased under this section(new house).In this Case Girish owned a house on the date of transfer of the property (land) so he is not correct and eligible for section 54 F 
  • Capital gain with or without indexation:For sale of land there is no option for calculation of tax without indexation and pay tax at lower rate.
  • Tax calculation:As you have not given month of plot purchase so I have assumed it as after march 2001 so on the basic of your tax calculation is given as under

    sale price=44
    indexed cost of purchase =6.5 X 582/426=8.88
    capital gain=44-8.88=35.12

    tax on capital gain 35.12 @ 20%=7.02 Lakh
  • Regarding availing relief u/s 54EF or not it depends on person to person,however necessary calculation which will be helpful in selecting right option at right time is given above.

If you have different views then please record in comment section.


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