Section 54EC - Exemption on Capital Gains

Under the Income Tax Act, there are certain sections, where capital gains will be exempted by reinvesting the gains on some bonds or assets. One of the popular sections is section 54EC, taxpayer allows to claim tax exemptions on long-term capital gains to reduce tax liability under certain conditions.

What is section 54EC?

Gains arising from the transfer of any long-term capital asset are essentially taxable but under section 54EC the exemption is available on these gains by investing the profits arising from a sale of a long-term capital asset on specific capital gain bonds like REC, NHAI, etc. The asset could be land, immovable property, or both of it.

  • Taxpayer must invest in specified bonds within 6 months from the date of the sale of an asset.
  • The investment in specified bonds u/s 54EC, including, the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), etc.

These bonds are government-backed and thus have lower risk factors. Individuals can redeem these bonds before the maturity period. Moreover, these are not listed bonds, And the Interest earned on these bonds is taxable.

Read more about the conditions for Section 54EC of Income Tax Act on Sale of Land/Building- Learn by Quicko.

The exemption amount will be the least of the,
a) The cost of NHAI/REC Bonds
b) The Capital Gains on the sale of land or building

Let’s understand by an example,

Ajay sold land in FY 2022-23 for ₹80 lakhs, which was purchased in FY 2017-18 for ₹50 lakhs, Now if he wants to purchase NHAI bonds for ₹40 lakhs in FY 2022-23, he is eligible to claim the exemption u/s 54EC.

The calculation of the exemption is as follows:

Taking inflation into consideration, the cost price will be adjusted, and the indexed cost of acquisition will also be taken into account.

Index Cost of Acquisition = Cost Price* Cost of Inflation (FY 2022-23) / Cost of Inflation (2017-18).


When can 54EC bonds be withdrawn?

The exemption claimed under section 54EC would be withdrawn, in case the long-term specified asset is transferred or converted into money before the expiry of the period of five years.

Are capital gains bonds taxable on maturity?

By investing in such bonds, it can be tax-exempted. You will need to declare capital gain from 54EC bonds under your return filing. However, the interest earned is taxable as per the income tax slab.

What is the maximum limit of exemption u/s 54EC?
The maximum exemption available in these bonds under 54EC cannot be more than Rs 50 lakh during the financial year.

Here’s a detailed article on Section 54EC of Income Tax Act on Sale of Land/Building- Learn by Quicko.

If any doubts, ask them out.

as per the recent budget announced : the limit is capped to 10 crores ! what is this regarding ? can u pls clarify ?


The capital gain exemption limit capped to ₹10 crores is applicable to only section 54 and section 54F.
However, for section 54EC the maximum exemption available is ₹50 lakhs during the financial year.

Hope it helps.

Does the long term capital asset denote only sale of land & building or even shares ?

Hi @Sachin1

For exemption under section 54EC, the gains should arise from land or building or both, and the gains should be invested in 54EC bonds (such as NHAI, REC, PFC, IRFC, or any other bonds notified by the Central Government) within 6 months from the date of sale of immovable property.

The maximum exemption available under section 54EC is ₹50 lakhs.

Hello Slump Sale ( 50 B) includes Land and Building alongwith Machinery etc as a going concern. Is it allowed to claim under the same. The ITR Forms under long term capital gain of slump sale still shows the 54EC. Can you please confirm

Hi @Vinay_R,

Yes, you can take exemption under section 54EC on the sale of land or building or both being LTCA, which does not include STCA and from the sale of its proceeds, you purchase bonds of NHAI or REC. If conditions satisfied.

There’s no particular provision mentioned for slum sales u/s 54EC.

Thanks , So does that mean Slump sale proceeds ( 50B) can be invested in 50EC.