Encashment of rec bonds u/s 54ec

[satbir singhwahi]

whether investment in rec bonds u/s54ec can be encashed on death of the holder by legal heirs before maturity.

[Mukesh Kumar]

The reading of section 54EC(2) is plain and unambiguous as in my view that in case of encashment of bond before three years invested u/s 54EC is taxable under section 45. Moreover it would be taxable in the year in which condition is violated. Therefore, since it is taxable in the year of encashment, the legal heirs would be liable to pay tax.

AI Summary

Taxability of premature 54EC bond encashment under section 45: legal heirs liable for tax in the year of encashment. Premature encashment of bonds acquired under the specified investment provision causes loss of exemption and results in taxability under the capital gains provision. The tax is triggered in the year the holding-period condition is violated; therefore proceeds encashed by legal heirs on the holder's death before maturity are taxable in that year.