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Sec. 54EC should be brought back to life

Thanks to your column in The Hindu Tax Forum informing us that relief under Sec. 54EC may not always be available. Earlier we were complacent that we could always invest surplus funds arising out of capital gains by selling property in bonds and avoid tax.

I am one of those contemplating selling a property and would not like to find myself in a situation, where I have to pay hefty capital gains tax and lose whatever benefit arising out of the sale of property.

You have rightly suggested further notification of other undertakings.

I have a suggestion which I feel is better. As the capacity of undertakings to use funds is limited, the government may have to issue frequent notifications from time to time after identifying deserving undertakings.

Nationalised banks may be authorised to issue special capital gains bonds, which will naturally be at a lower rate of interest than for fixed deposits in banks. Only funds got out of sale of property may be permitted investment in these bonds. These bonds can have fixed lock-in period of four years, with no facility for premature encashment.

I request you to give publicity to this suggestion of mine in your columns, as I feel a letter to the Finance Ministry may not receive any attention, whereas if the suggestion receives publicity in your column, it is likely to receive consideration of the authorities.

The Hindu has received a number of letters suggesting restoration of life for Sec. 54EC by further notifications of eligible bonds. The reader's suggestion is one, which avoids the necessity of frequent notifications as and when the current bonds are over-subscribed with uncertainty as to the availability in view of the ceiling, which is being placed for any such notified bonds.

Press Note dated December 27, 2006 noticing the "hardship caused to taxpayers because of non-availability of the bonds" states that another notification has been issued making available bonds for an aggregate amount of Rs. 3,500 crore for the bonds to be issued by Rural Electrification Corporation and National Housing Authority of India. Extension of time limit for investment has been allowed up to March 31, 2007 for those who have transferred assets as between September 29, 2005 and September 30, 2006 (both dates inclusive). A ceiling of Rs. 50 lakh has been placed for any single assessee for such investments under Sec. 54EC. The amount is measly considering the number of assessees seeking to avail the benefit, apart from the fact that it caters only to a few persons among assessees similarly placed. The new limit is bound to be exhausted even before it is publicised.

In view of the pressing need for infrastructure development, the suggestion from the reader H. R. Srinivasan of Mysore should be welcomed, since the revenue loss by such concession would be more than offset by the advantage of finance channelised for infrastructural needs of the government and public sector projects. The multiplier effect of such investments on employment and growth should be much more rewarding than the revenue loss. Selective dilution of relief under Sec. 54EC, which only authorises specification of the bonds and not dilution of the statutory relief itself, is not sound fiscal policy. One does not expect the CBDT to over-ride the mandate of Parliament.

S. RAJARATNAM

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