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.
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 |
|
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 |
|
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 [email protected] and can be called at +91-9873368144.
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Section 54 says that new house should be constructed within 3 years. But now a days if one books a flat in a big apartment it takes 3.5 years. Then how to get capital gain exemption. Please explain the way out.
Sir, What happens if we sell recently purchased or built property within three years and in accordance with the provision’s [net consideration- (cost of acquisition-capital gain exempted earlier)]? If my cost of acquisition is less than my capital gains and I claim the whole amount as an exemption earlier, am I now responsible for the full amount of the net consideration since my cost of acquisition is equal to the capital gains that were previously exempted?
Didn’t get the query properly. Please give me a call at 9873368144 to discuss.
I got property from my father which he purchased in 1970 and I renovated the house in 2016 and sold one floor to third party, the amount was utilized for construction of building and I took for capital gain exemption of the amount, now I want to sell my floor, is there any locking period to sell my floor for exemption of earlier amount.,
Dear Ranganath,
The lockin period to sell the property is 3 years in case you took the exemption u/s 54.
A PERSON SOLD COMMERCIAL PROPERTY/SHOP FOR RS.40 LAC WHICH WAS CONSTRUSTED ON A PLOT PURCHASED IN A YEAR 1971 AND THE CONSTRUCTION WAS COMPLETED IN THREE STAGES AND FINAL COMPLETION MADE IN JAN 2001 . HE SOLD THE PROPERTY IN THE YEAR APRIL 2021. THE TOTAL COST OF THE LAND AND BUILDING THEIR IS ABOUT 3 LAC. THE CAPITAL GAIN IS ABOUT IS 37 LACS. THE SAID PERSON PURCHASES ONE RESIDENTIAL HOUSE IN JULY 2021 FOR RUPEES 37 LAC PLUS REGISTRATION EXPENSES OF RS. 2 LAC .
2 IF A PURCHASES THE HOUSE FOR RS.37 LAC FROM THE SALE PROCEED SAY 20 LAC AND HE TAKEN LOAN FROM THE BANK WHAT WOULD BE HIS LIABILITY AS CAPITAL GAIN TAX
You have mentioned eligible assets transferred as Land and Building for 54 EC exemption, However transfer of any long term assets is eligible for exemption u/s 54EC. Please confirm.
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.
Great Job Sir.