This article focuses on the exemptions available to an assessee from capital gain tax under Income Tax Act, 1961.

Any profit or gain arising from Transfer of Capital Asset (long term or short term) shall be chargeable under the head capital gain in the year of transfer.

However, there are some exemptions on such capital gains which are explained as under.

Capital Gain

1. FOR INDIVIDUAL / HUF ONLY

  SECTION- 54 : Capital Gain on Sale of Residential Property used for residential purpose SECTION- 54B : Capital Gain on Sale of Urban Agricultural Land used for agriculture
Nature of asset transfer Long Term Capital Asset Long Term Capital Asset
Asset transferred Residential House Property being Building & Land appurtenant there to Land used for agricultural purposes by the individual / his parent / HUF during 2 years before transfer
New asset to be purchased/ constructed Residential House in India Agriculture Land whether in Rural area or Urban area
Time Limit for purchase/ construction Purchase – Within 1 year before or 2 years after the date of transfer

Construction – Complete construction within 3 years from date of transfer

Purchase – Within 2 year after the date of transfer
Deposit Scheme Available Available
Exemption Amount 1. Capital Gain, or

2. Cost of New Asset/ Deposit amount

Whichever is Lower

1. Capital Gain, or

2. Cost of New Asset/ Deposit amount

Whichever is Lower

Conditions If new asset is transferred within 3 years from date of purchase/ construction then cost of acquisition of new asset will be reduced by exempted capital gain If new asset is transferred within 3 years from date of purchase then cost of acquisition of new asset will be reduced by exempted capital gain
 
  SECTION- 54F : Capital Gain on Sale of Long Term Capital Asset other than Residential house property SECTION- 54GB : Transfer of Residential Property or plot of land
Nature of asset transfer Long Term Capital Asset Long Term Capital Asset
Asset transferred Any Long term capital asset other than residential house property Residential Property being house or plot of land
New asset to be purchased/ constructed Residential House Property being Building & Land appurtenant there to Subscription in Equity Shares of Eligible Company (refer note-3)
Time Limit for purchase/ construction Purchase – Within 1 year before or 2 years after the date of transfer

Construction – Complete construction within 3 years from date of transfer

Shares should be subscribed upto the due date of income  tax return filing
Deposit Scheme Available Available to Eligible Company
Exemption Amount Cost of New Asset   X  ( Capital Gain / Net Consideration ) Cost of New P & M    X  ( Capital Gain / Net Consideration )
Conditions If new asset is transferred within 3 years from date of purchase/ construction then exempt capital gain will become taxable in year of transfer as long term capital gain
  • Company should invest the amount of subscription in New Plant & Machinery (P&M) within one year.
  • If Equity Shares or New P&M transferred within 5 years from the date of acquisition/ subscription then exempt capital gain will become taxable in year of transfer in hands of Individual/ HUF.

2. FOR ALL TYPE OF ASSESSEE

  SECTION- 54D : Compulsory Acquisition of Industrial Land & Building SECTION- 54EC : Investment in certain Bonds
Nature of asset transfer Long Term Capital Asset Long Term Capital Asset
Asset transferred Compulsory acquisition of Industrial land & Building used in business for 2 years prior to date of transfer Land, Building or both
New asset to be purchased/ constructed New Land or Building for industrial undertaking Bonds redeemable after 5 years issued by: NHAI/ RECL/ PFCL/ IRFCL

Maximum investment can be Rs. 50 Lakhs

Time Limit for purchase/ construction Within 3 years from the date of receipt of compensation Within 6 months from the date of transfer of asset
Deposit Scheme Available Not Available
Exemption Amount 1. Capital Gain, or

2. Cost of New Asset/ Deposit amount

Whichever is Lower

1. Capital Gain, or

2. Cost of New Asset/ Deposit amount

Whichever is Lower

Conditions If new asset is transferred within 3 years from date of purchase/ construction then cost of acquisition of new asset will be reduced by exempted capital gain If new asset is transferred or converted into money within 5 years from date of purchase then exempt capital gain will become taxable in year of transfer/conversion
 
  SECTION- 54G : Shifting of undertaking to Rural Area

SECTION- 54GA : Shifting of undertaking to SEZ

SECTION- 54EE : Investment in Units of Funds notified by Central Government
Nature of asset transfer Long Term/ Short Term Capital Asset Long Term Capital Asset
Asset transferred Transfer of P & M or Land or Building for shifting industrial undertaking to Rural area or SEZ as the case may be Any long term capital asset
New asset to be purchased/ constructed
  • Purchase/construction of P&M or land or building in such area
  • Shifting original asset to that area
  • Incurred notified expenses
Units of funds notified by Central Government
Time Limit for purchase/ construction Within 1 year before or 3 years after the date of transfer. Within 6 months from date of transfer.
Maximum investment can be Rs. 50 Lakhs
Deposit Scheme Available Not Available
Exemption Amount 1. Capital Gain, or

2. Cost of New Asset/ Deposit amount

Whichever is Lower

1. Capital Gain, or

2. Cost of New Asset

Whichever is Lower

Conditions If new asset is transferred within 3 years from date of purchase/ construction then cost of acquisition of new asset will be reduced by exempted capital gain If new asset is transferred or converted into money within 3 years from date of purchase then exempt capital gain will become taxable in year of transfer/conversion

NOTES

1. Wherever Deposit scheme is applicable, the amount should be deposited in Capital gain account before due date of filing ITR.

2. Amount of Capital gain account deposit should be utilized within the time limit of purchase/ construction of new asset for that specified purpose otherwise it will get taxable as capital gain in the year of expiry of such time limit.

3. Eligible Company
Newly Incorporated eligible Start-up which is engaged in the business of manufacturing or eligible business of innovation, development or improvement with a high potential of employment.

“The assessee should have more than 50% of share capital or voting rights in such eligible business”.

4. New Plant & Machinery in Section 54GB does not include Second hand P&M, Office appliances including computer & software, Vehicles and P&M which are deductible under PGBP.

5. In case of Section 54, assessee can get an exemption from long term capital gains from the sale of house property by investing in up to two house properties. However, the capital gains on the sale of house property must not exceed Rs 2 crores.

6. In case of Section 54F, on the date of transfer the assessee should not own more than one residential house in order to take exemption.

Disclaimer : The information contained in this article is intended solely for the dissemination of information and does not aim at solicitation of work. Though meticulous care has been taken but the author assumes no liability in respect of any loss/ damage incurred while acting on the information provided in this article. The author can be reached at SAMAKSH.SGC@GMAIL.COM and can be called at +91-9873368144.

Author Bio

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Company: Samaksh Gupta & Co.
Location: Delhi, New Delhi, IN
Member Since: 04 Feb 2020 | Total Posts: 2
I am a Qualified and Practicing Chartered Accountant based in Delhi and having key interest and expertise in Direct taxes; Indirect taxes and Corporate & Economic Laws and I believe my expertise have roots in my internship in a renowned CA firm bagging its place in top 10 firms of India for past fe View Full Profile

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2 Comments

  1. katul says:

    Dear Sir,
    Thank you for a detailed article.
    Please can you clarify, specifically for this year AY20-21, what would be the last date before which one can open a CGAS Account and park funds under Section 54.
    Under one Circular, all investments under Section 54 need to be complete by 29-Sept; whereas the Extension date Circular for ITR filing states 30-Nov as the date, and technically CGAS Account can be opened before filing the ITR.
    Appreciate your help.

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