Earned ₹1.2 crore LTCG from selling land. Can I invest in tax‑saving bonds over two years?

There is a cap of ₹50 lakh on tax-saving investments under Section 54EC of the Income-tax Act, 1961. Such investment in capital gains bonds qualifies for tax exemption. However, there are some small details about this provision that many taxpayers do not know. Today's Q&A explains such details in response to a query by a reader.

The laws also provide that a maximum of ₹50 lakh can be invested in one or more of such bonds taken together in a financial year. The law further provides that an exemption of up to a maximum of ₹50 lakh can be claimed with respect to long-term capital gains arising during one financial year, even if the period of six months is covered in two financial years.

Since the law specifically provides for a cap of ₹50 lakh with respect to which exemption for a particular financial year can be claimed even if the investments of ₹50 lakh each are made in two financial years falling within six months from the date of sale of the land/building, you can only claim exemption under section 54EC for ₹50 lakh only for the financial year 2025-2026.

However, your son can still claim exemption under section 54F if he invests the net sale proceeds relatable to the balance long-term capital gains of ₹62 lakh in a residential house within the prescribed time period, provided he did not own more than one residential house on the date of sale of the plot of land.

Please note that for claiming exemption under section 54EC, only the long-term capital gains are required to be invested, but for claiming exemption under section 54F, your son will have to invest the proportionate sale proceeds in the residential house.

Since capital gains are long-term, as stated by you, the plots of land were obviously bought before 23rd July 2024. So, in case your son does not want to invest in the residential house property and presuming that your son is a resident under the tax laws, he has the option to pay tax on long-term capital gains at a lower of @ 12.50% without indexation or @ 20% with indexation.