Long-term capital gain arising on the transfer of any capital asset being land or building or both is exempt under Section 54EC in the following circumstances:
(i) The asset (i.e., land or building or both) transferred is a long-term capital and hence, there is a long-term capital gain.
(ii) The asset is transferred by any assessee.
(iii) The assessee has within a period of 6 months after the date of such transfer invested the capital gain in the long-term specified assets.
(iv) The cost of long-term specified assets which is considered for the purpose of exemption under this section i.e., 54EC, shall not be eligible for deduction with reference to such cost u/s 80C.
Quantum of deduction
(i) If the amount of capital gain is equal to or less than the cost of the long-term specified assets acquired within 6 months of the date of transfer, the entire capital gain shall be exempt.
(ii) If the amount of capital gain is greater than the cost of the long-term specified assets, than the cost of the long-term specified assets shall be allowed as exemption.
In other words, capital gain shall be exempt to the extent it is invested in the long-term specified assets within a period of 6 months from the date of such transfer.
Investment in Bonds limited to Rs.50,00,000 :
The investment made in the long-term specified asset by an assessee out of capital gains arising from transfer of one or more original asset during any financial year in which the original asset or assets are transferred and in the subsequent financial year cannot exceed Rs. 50 Lakh.
Consequences if the Long-Term Specified Asset is Transferred or Converted into Money within 5 Years:
Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any time within a period of 5 years from the date of its acquisition, the amount of capital gain exempt u/s 54EC earlier, shall be deemed to be long-term capital gain of the previous year, in which the long-term specified asset is transferred or converted (otherwise than by transfer) into money.