exemption (54ec) of long term capital gains tax in case of death of individual
Kapil Tiwari
(Querist) 14 February 2014
This query is : Resolved
An individual, Mr.X, sold a plot of vacant land and in order to claim exemption of long term capital gains tax, invested Rs.50 lakhs in 54EC tax saving bonds of NHAI and REC. The bonds have a lock-in period of 3 years. Within 3 years, the bonds cannot be transferred or converted or sold in order to claim the tax exemption.
Now, if Mr.X expires within one year of investing in the 3-year bonds, will the tax exemption still be available, provided the bonds are not transferred or converted or sold? Should the bonds continue to remain in the name of Mr.X for additional 2 years (even after death) to complete the 3-year lock-in period? Is this legally allowed?
Or, do the bonds have to be transferred/transmitted to the nominee of Mr.X (after his death) and the nominee does not transfer/convert/sell the bonds until the 3-year lock-in period is complete?
The worry is that transfer/transmission of the 3-year 54EC bonds to the nominee within one year may amount to not holding the bonds for the compulsory 3 years and hence capital gains tax will have to be paid.
Kindly advise what is the best course of action. Thanks.
Anirudh
(Expert) 14 February 2014
The requirement of the Section is that the amount should be 'invested', which stands done in the present case.
The further requirement is that the same should not be converted into money within the lock-in period. So allow the lock-in period to expire before doing anything. That should satisfy the requirement.
R.V.RAO
(Expert) 14 February 2014
the nominee named in the bond application should apply for transmission enclosing death cert. and original bonds.for this to happen one need not wait for 3 year period to expire.
The one time tax exemption to the original investor in the year of investment does happen eventually.it does not repeat in any subsequent yearor to any body. you may also write to the issuer of bonds stating the facts and follow their transmission prcedures.
M V Gupta
(Expert) 14 February 2014
Transmission of the bonds on the death of the holder is not the transfer as contemplated by the Section 54 EC. Hence the nominee can apply for transfer of the bonds into his name and hold it for the lock in period.
Kapil Tiwari
(Querist) 15 February 2014
Thank you very much dear Sirs, Mr. Anirudh, Mr. Rao and Mr. M.V. Gupta. I have understood that the transmission of the bonds to the nominee is NOT TRANSFER, and that the nominee can hold it in his name until the lock-in period of 3 years is complete.
I wish to understand if this transmission of the bonds to the nominee, on the death of the original bond holder, is compulsory/mandatory or whether there is an option that the bonds may continue to be held in the name of the original bond holder, for the entire lock-in period of 3 years, even after the death of the original bond holder. Kindly advise.
R.V.RAO
(Expert) 15 February 2014
Mr.Tiwari,
u r bound to inform the bond issuer about death of the original investor immediately on happening of the event.
then the bond issuer will advise you further.it is necessary that the interest accrue in your name but not the deceased person.if you have any particular difficulty,pl. spell out.
Anirudh
(Expert) 15 February 2014
Dear Mr. R.V.Rao,
Can you for my knowledge, indicate as to which provision of law binds one to inform the bond issuer about the death of the bond holder?
T. Kalaiselvan, Advocate
(Expert) 15 February 2014
Under the provisions of the said section of the Act, the tax exemption granted on such investments with NHAI or REC,is one time and in this case this was made available to the original holder of the bond, though the holder is presumed to have died within three years of purchase of bonds, i.e., lock in period, the bonds will be released after maturity, i.e., three years after purchase, the nominee or the successor will be eligible to claim the same.
Kapil Tiwari
(Querist) 16 February 2014
Dear Kailaiselvan Sir, which of the following 3 options is legally correct?:
(1)Even in case the original bond holder dies, can the bonds be held in his name for the entire 3 years lock in period?
(2) In case the original bond holder dies, should the bonds be transmitted to the "nominee" and held in the nominee's name for the entire 3 years lock in period?
(3)In case the original bond holder dies, should the bonds be transmitted to the "legal heirs" and held in the names of the "legal heirs" for the entire 3 years lock in period?
Thanks.
R.V.RAO
(Expert) 16 February 2014
when i go through the detailed terms and conditions of NHAI bonds , i find that in case of loss or theft of such bonds or notice of trust/notice of interest in the bonds given by any party,the demat records/physical records of the issuer of bonds treat the original allottee/original investor as owner of bonds.
In case of such unfortunate events ,the legal heir/nominee may face the first question as to why the death of owner was not informed earlier to the issuer.
this is the reason i ask the queriest to inform the issuer about the sad demise of the original owner.
sometime it is simple common sense ,but not force of law that works.
Kapil Tiwari
(Querist) 17 February 2014
Dear Mr. Rao, I have understood your point and thank you for your nice explanation.
R.V.RAO
(Expert) 17 February 2014
thank you sri tiwariji.
