s.54EC — Exemption for capital gain invested in specified bonds
Long-term capital gain on land or building is not charged to the extent it is invested within six months in notified five-year bonds, up to fifty lakh rupees across the year of transfer and the next.
The words "being land or building or both" in sub-section (1) were inserted by the Finance Act, 2018 with effect from 1 April 2019. Clause (a) of sub-section (3) was omitted by the Finance Act, 2023 (Act No. 8 of 2023) with effect from 1 April 2023. Bonds issued on or after 1 April 2018 must be redeemable after five years. The counterpart in the Income-tax Act, 2025 is section 85, which the Finance Act, 2026 did not amend.
Income-tax Act, 1961
s.54EC
Income-tax Act, 2025
s.85
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 54EC of the Income-tax Act, 1961 applies where capital gain arises from the transfer of a long-term capital asset, being land or building or both (a condition inserted by the Finance Act, 2018 from assessment year 2019-20; before that any long-term capital asset qualified), and the assessee invests the whole or any part of the gain in a long-term specified asset at any time within six months after the date of the transfer. If the cost of the investment is not less than the gain, the whole gain is not charged under section 45; if it is less, the proportion that the investment bears to the gain is not charged. The first proviso limits investment in any financial year to fifty lakh rupees, and the second limits the investment from gains on one or more original assets, in the year of transfer and the following year together, to fifty lakh rupees. For investment on or after 1 April 2018 a long-term specified asset is a bond redeemable after five years and issued on or after that date by the National Highways Authority of India or the Rural Electrification Corporation Limited, or any other bond notified by the Central Government. Under sub-section (2), if the bond is transferred or converted into money within three years from its acquisition, read as five years for bonds issued on or after 1 April 2018, the gain exempted is deemed long-term capital gain of the year of transfer or conversion; a loan or advance taken on the security of the bond is treated as conversion into money on the date it is taken. Sub-section (3)(b) denies a deduction under section 80C with reference to the cost of the bonds. Unlike sections 54 and 54F, the section is not confined to individuals and Hindu undivided families. The counterpart in the Income-tax Act, 2025 is section 85: sub-section (1) exempts long-term gain on land or building, or both, to the extent invested within six months in the new asset, sub-section (2) keeps the fifty lakh rupee limit, sub-section (4) treats a loan on the security of the new asset as conversion, and sub-section (6) defines the long-term specified asset in the same terms. There is no ten crore rupee cap of the kind in sections 82 and 86.
What the provision does
Exempts long-term gain on land or building, or for years before assessment year 2019-20 on any long-term capital asset, to the extent it is put into notified bonds within six months, capped at fifty lakh rupees, and claws the exemption back if the bonds are cashed or borrowed against within the lock-in. For current transfers it does not reach gain on an asset that is not land or building, it does not reach short-term gain, and it helps a redevelopment participant only where cash is received, because a member who takes area for area has no money to invest.
Threshold questions
- For a transfer from assessment year 2019-20, is the asset transferred land or building or both, rather than a booking right, a right in a project or a bare development right
- Was it a long-term capital asset on the date of transfer
- What is the date of transfer from which the six months run
- Was the money invested within six months after that date in a bond that is a long-term specified asset
- Does the investment stay within fifty lakh rupees in the financial year, and across the year of transfer and the next together
- Will the bonds be held through the lock-in without transfer, conversion into money or a loan taken on their security
In practice
The recurring disputes.
Whether a redevelopment receipt arises from land or building
From assessment year 2019-20 sub-section (1) requires the original asset to be land or building or both; the words were inserted by the Finance Act, 2018 with effect from 1 April 2019, and before that any long-term capital asset qualified. In Sherlyn Dias, legal heir of Dorothy Lawrence Pereira (June 2026), the Mumbai Tribunal held that Rs 50 lakh received by one of four owner families under a 2010 development agreement for the redevelopment of Katy Kunj was capital gain on the grant of development rights, and directed section 54EC to be allowed in accordance with law; the Assessing Officer had held section 50C inapplicable because the document was an agreement for development and not for sale. That was assessment year 2011-12, so the order did not have to decide whether development rights are land or building, and it is no authority on that point for a current transfer. For a transfer from assessment year 2019-20 the Revenue's argument is plain: if the asset is a right and not land or building, this section does not fit, and if it is land or building, section 50C may apply, as it did in Chiranjeev Lal Khanna (April 2011, assessment year 2005-06), where section 54EC was allowed alongside. The Ahmedabad Tribunal's view in Yasin Moosa Godil (April 2012) that a booking right is not land or building, useful against section 50C, cuts the other way here. No order on the post-2019 text in a redevelopment was traced.
The date of transfer and the six months
The window runs from "the date of such transfer", and in redevelopment that date is itself contested. In Jigar Sevantilal Shah (April 2026) the Mumbai Tribunal held that a tenant's surrender took place only on receiving possession of the new flat, because the agreement said so, and not when the old premises were vacated. In Vasantha Narayan Poojari (March 2026), speaking on the merits only for completeness after quashing the reopening, it treated the owner of premises run as a motor garage as having transferred them in 2012, and not on the 2017 agreement, when, directed by the competent authority to vacate (under section 95A of the Maharashtra Housing and Area Development Act, according to the assessee's submission), he accepted the developer's offer letter of 17 November 2011 and vacated in March 2012. On that footing the shop he received was valued at 2011 and 2012 rates under the first proviso to section 56(2)(vii)(b); the date was fixed for valuation, not for section 45, but the Revenue may borrow it. The member wants the date that keeps the investment inside six months; the Revenue may adopt an earlier date at which the window had already closed. Investing within six months of the earliest arguable date protects the claim, if the cash has been received by then.
Instalments and the fifty lakh rupee limit
Redevelopment money is often paid over several years. In Urmila Dhelia, a hardship compensation case in which section 54EC was not in issue, the member's entitlement was payable ten per cent on her consent in 2010, ten per cent on the society's consent in 2013, fifty-five per cent on vacating in 2015 and the last twenty-five per cent on handing possession to the developer. The section measures six months from the transfer, not from receipt, and limits investment to fifty lakh rupees across the year of transfer and the next. A member who receives most of the money after the window has closed cannot invest it in time; the argument that the gain arises only as money is received runs into the words of sub-section (1). The orders found do not deal with instalment receipts under this section.