Capital gain Exemption through Investment in the Certain Bonds in Clause 85 of Income Tax Bill, 2025 Vs. Section 54EC of Income Tax Act, 1961

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....ments in specified financial instruments by offering tax exemptions, thereby promoting economic growth and financial stability. The legislative context of this provision is rooted in the broader framework of capital gains taxation, which seeks to balance revenue generation with incentivizing productive investments. Objective and Purpose The primary objective of Clause 85 is to provide tax relief to taxpayers who reinvest capital gains from the sale of long-term assets into specified bonds. This provision aligns with the policy considerations of encouraging long-term investments and channeling funds into sectors deemed beneficial for economic development. Historically, similar provisions have been used to stimulate investments in infrastru....

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....ances Against New Asset It states that any loan or advance taken on the security of the new asset will be treated as a transfer, triggering tax liability. This provision prevents the circumvention of the retention requirement by using the asset as collateral for loans. 5. Deduction Restrictions This section clarifies that investments considered for exemption under this clause cannot claim deductions under another section, preventing double benefits. 6. Definition of "New Asset The clause defines a "new asset" as a bond redeemable after five years and notified by the Central Government. This definition ensures that the tax benefit is aligned with investments that have a long-term horizon, contributing to economic stability. Practi....

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....pital gains arising from the transfer of long-term capital assets, provided the gains are reinvested in specified bonds. This section plays a crucial role in the taxation framework by encouraging the reinvestment of capital gains into productive sectors, thus aligning individual tax planning with national economic objectives. The provision has undergone several amendments, reflecting the evolving policy priorities and economic conditions. Objective and Purpose The legislative intent behind Section 54EC is to incentivize taxpayers to reinvest capital gains into long-term specified assets, thereby promoting infrastructure development and other critical sectors. By offering a tax exemption, the provision seeks to channel financial resources ....

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....holding for tax avoidance. Explanation: Loans Against Bonds The explanation section deems any loan or advance taken against the specified bonds as a conversion into money, effectively nullifying the tax benefit. This anti-abuse measure prevents taxpayers from circumventing the lock-in period by monetizing the bonds through loans. 4. Restrictions on Deductions This sub-section prohibits deductions u/s 80C for investments in specified bonds already considered u/s 54EC. This prevents double-dipping, ensuring that taxpayers do not claim multiple tax benefits for the same investment. 5. Definition of "Long-term Specified Asset" The definition of "long-term specified asset" includes bonds notified by the Central Government, redeemable af....