Circular No. 750 — Sections 54EA and 54EB l Exemption of Capital Gains on Transfer of Long-term Capital Asset

What this is

Circular No. 750 was issued by the Central Board of Direct Taxes on 13 January 1997. Its subject is Sections 54EA and 54EB l Exemption of Capital Gains on Transfer of Long-term Capital Assets in Case of Investment in Specified Securities, ETC.,.

This amends the Income-tax Rules. What it changes is the Rules, not the Act — and a rule can never take away what the section gives.

What it does

Extends the guidelines in Circular No. 748 dated 19-12-1996 to shares of public companies. The Income-tax (Second Amendment) Ordinance, 1996, promulgated on 31-12-1996, added by its section 2 shares issued by a public company to the instruments in which capital gains may be invested to obtain exemption under sections 54EA and 54EB. The Board says the guidelines already laid down for bonds and debentures apply equally to such shares, both for the procedure of applying to the Board and for the manner in which the investible capital is to be used. For these two sections, shares of a public company mean a primary issue of share capital, and 'public company' bears the meaning given in section 3 of the Companies Act, 1956.

Why it was issued

The Ordinance widened the list of qualifying instruments after the guidelines had gone out, so the Board had to say how the existing guidelines applied to the new instrument.

Who it reaches

Assessees investing long-term capital gains under sections 54EA or 54EB
Public companies seeking approval of an issue for these sections
Merchant bankers structuring a qualifying primary issue
Assessing Officers testing whether an investment qualifies

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.2	s.2, s.346, s.355
s.3	s.3
s.54EA	no counterpart recorded
s.54EB	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTIONS 54EA AND 54EB l EXEMPTION OF CAPITAL GAINS ON TRANSFER OF LONG-TERM CAPITAL ASSETS IN CASE OF INVESTMENT IN SPECIFIED SECURITIES, ETC.,
Guidelines for companies and mutual funds in respect of approved investments for purposes of sections 54EA and 54EB

1. Circular No. 748, dated 19th December, 1996 (Clarification 1) laid down guidelines in respect of approved investments for purposes of section 54EA and section 54EB of the Income-tax Act. Subsequent to the issue of those guidelines, the Income-tax (Second Amendment) Ordinance, 1996 has been promulgated on 31-12-1996. By virtue of section 2 of the Ordinance, shares issued by a public company have been included in the investment instruments which would qualify for exemption from capital gains tax under section 54EA and section 54EB.
2. The guidelines laid down for bonds and debentures in Circular No. 748 will also apply to the shares issued by public companies with regard to the procedure for application to the Board as well as with regard to the manner in which the investible capital is to be utilized.
3. For the purposes of sections 54EA and 54EB shares of a public company shall mean primary issue of share capital and "public company" shall have the same meaning as defined in section 3 of the Companies Act, 1956.
Circular : No. 750, dated 13-1-1997.

What to watch

Only a primary issue qualifies; buying existing shares of a public company in the market does not.
The company must satisfy section 3 of the Companies Act, 1956, and the Board's approval procedure from Circular No. 748 must be gone through.
The utilisation conditions for the investible capital carry over from the bond and debenture guidelines and are easily missed.
Sections 54EA and 54EB have since been withdrawn from the Act, so no fresh investment arises under them.

Where you meet it

On a capital gains assessment where exemption is claimed for a subscription to a public company's issue.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 89/2026-CBDT [F. No. 164/1/2026-ITA-1] / SO 3936(E) — Ministry of Finance 17 July 2026
Notification No. 75/2026 [F. No. 275/18/2026-IT(B)] / SO 3610(E) : TDS Exemption on Ship Lease Payments to IFSC Units — 4 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 July 2026
Notification No. 74/2026 [F. No. 275/16/2026-IT(B)] / SO 3609(E) : TDS Exemption on Aircraft Lease Payments to IFSC Units — 4 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 3 July 2026
Notification No. 65/2025 [F. No. 300196/4/2019-ITA-I] / S.O. 2739(E) — Ministry of Finance 19 June 2025
Notification No. 56 /2025 [F.No.300164/4/2024-ITA-1] / SO 2576(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 12 June 2025
Notification No. 52/2025 [F. No. 300164/5/2024-ITA-1] / SO 2447(E) — Ministry of Finance 30 May 2025

← Circular No. 751 · Circular No. 749 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.