Capital gains tax exemptions under the Income Tax Act provide relief for taxpayers who invest their gains in specified assets. Section 54 offers exemption for gains from selling residential property if the proceeds are used to buy or construct a new residential property in India. Section 54B covers gains from agricultural land transfers, requiring reinvestment in new agricultural land. Section 54D provides relief for gains from compulsory acquisition of industrial land, mandating investment in new industrial assets. Section 54EC allows exemption for gains invested in specified bonds. Each section has specific conditions, including time limits for reinvestment and caps on exemption amounts. Exemptions are generally available to individuals and HUFs, with particular rules for using capital gains accounts to defer tax. Failure to adhere to investment deadlines or transferring new assets within prescribed periods can lead to withdrawal of exemptions.
FAQs on Exemption available from Capital gains
Q1. What are the various exemptions available in respect of capital gains arising on the transfer of capital assets?
Ans: Section 54 provides exemption with respect to capital gains arising from the transfer of a residential house property. The exemption is allowed only if the amount of capital gains are invested for the purchase or construction of new residential house property.
Q2. What is Section 54 of the Income Tax Act?
Ans: The Income-tax Act allows exemption from capital gains tax if the amount of capital gains or sale consideration, as the case may be, is further invested in specified new assets. These exemptions are as under the following sections:
a) Section 54- Capital Gain arising from the transfer of residential house property
b) Section 54B- Capital Gain arising from the transfer of land used for agricultural purpose
c) Section 54D- Capital Gains on compulsory acquisition of land and building, forming part of industrial undertaking
d) Section 54EC- Capital Gain not be charged on investment in certain bonds
e) Section 54EE- Capital Gain not to be charged on investment in units of a specified fund
f) Section 54F- Capital Gain on transfer of a long term capital asset other than a house property
g) Section 54G- Capital Gain arising on transfer of assets in case of shifting of industrial undertaking from the urban area
h) Section 54GA- Capital Gain arising on transfer of assets in case of shifting of industrial undertaking from the urban area to any Special Economic Zone
i) Section 54GB- Capital Gain on transfer of residential property
Q3. Who can claim an exemption under section 54?
Ans: Exemption under this section can be claimed only by an Individual or HUF.
Q4. Which capital asset is qualified for section 54 exemption?
Ans: The exemption under section 54 is allowed only if the capital gain arises from the transfer of a long-term capital asset being a residential house property or land appurtenant thereto whose income is taxable under the head ‘Income from house property’.
Here, long-term capital asset means an immovable property (land or building or both), held for more than 24 months immediately preceding the date of transfer.
Q5. Which new asset should be acquired for claiming exemption under section 54?
Ans: Exemption under this section can be claimed if the capital gain amount is invested for the purchase or construction of a residential house property. However, the exemption is allowed only if such new house property is situated in India.
Q6. What is the maximum amount of exemption allowed under section 54?
Ans: The maximum amount of exemption allowed under section 54 will be lower of the following:
a. Amount of long-term capital gains; or
b. Rs. 10 crores (Refer Note 1)
c. Aggregate of the amount invested in new house property and amount deposited in capital gain account scheme.
If the total amount invested in the new house property and the amount deposited in the Capital Gain Account Scheme exceeds Rs. 10 crores, the threshold limit will be adjusted first with the amount invested in the new house property. If the investment in the new house property is less than Rs. 10 crores, the remaining balance will be considered to be from the Capital Gain Account Scheme.
Note 1: Inserted by the Finance Act, 2023 with effect from assessment year 2024-25. Earlier, the exemption was allowed without any threshold limit.
Q7. Is there any limit on the number of house properties in which further investment can be made?
Ans: Exemption under section 54 is allowed only for investment in one house property. However, with effect from Assessment Year 2020-21, the exemption can be claimed for the purchase or construction of 2 house properties if the amount of long-term capital gains do not exceed Rs. 2 crores. This option can be availed once in a lifetime i.e. once this option is claimed, it cannot be further availed for the same or any succeeding financial years.
Q8. What is the time limit for making investment in new asset under section 54?
Ans: To claim exemption under section 54, the taxpayer should purchase another house within a period of one year before or two years after the date of transfer of old house or should construct another house within a period of three years from the date of transfer.
Q9. What is the Capital Gains Account Scheme?
Ans: Accounts opened under Capital Gains Accounts Scheme are special purpose accounts which are opened with an authorized bank. If assessee could not utilise the capital gains to purchase or construct a residential house by the due date of filing return of income, he may deposit the amount of capital gains in such accounts to claim the exemption from capital gains.
Q10. What is the time limit to deposit the unutilized amount in Capital Gain Scheme Account?
Ans: If till the date of filing the return of income, the capital gain arising on transfer of the house is not utilised (in whole or in part) to purchase or construct another house, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme.
The amount deposited in the Capital Gains Account Scheme has to be utilised within the specified period for purchase/construction of the residential house.
Q11. Whether investment made in a plot for the construction of a residential house are eligible for exemption under section 54?
Ans: CBDT’s Circular 667, dated October 18, 1993, clarified that the amount invested for the purchase of a plot towards the construction of a residential house is eligible for exemption under section 54. Further, it was clarified that the exemption will be allowed only if such construction is completed within the stipulated time limit.
What are the circumstances in which exemption under section 54 can be withdrawn?
The exemption claimed by assessee under section 54 can be withdrawn in the following circumstances:
(a) Amount deposited in capital gains scheme account is not utilized in prescribed time limit: Where the amount deposited is not utilized for purchasing a residential house property within 2 years or construction of house property within 3 years from the date of transfer, the un-utilized deposit in capital gain account scheme is deemed to be long-term capital gains in the year in which the prescribed time limit expires.
(b) Transfer of new house within 3 Years: If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exempt under section 54 will be deducted from the cost of acquisition of the new house.
Q12. What happens to the unutilised amount if the assessee (individual) dies before utilising the deposit under Capital Gains Scheme Account?
Ans: The CBDT vide Circular No. 743, Dated May 6, 1996, has clarified that if assessee (individual) dies without utilising the deposit within the prescribed period, the unutilised amount cannot be treated as income of the deceased person. This amount is not taxable in the hands of legal heirs also as the unutilised deposit does not partake the character of income in their hands.
Q13. What is Section 54B of the Income-tax Act?
Ans: Section 54B provides the exemption from capital gains arising from the transfer of agricultural land. The exemption can be availed if the amount of capital gains are further invested in the purchase of a new agricultural land under the prescribed time limit.
Q14. Who can claim exemption under section 54B?
Ans: Only Individual or HUF are eligible to claim exemption under this section.
Q15. Which capital asset is qualified for section 54B exemption?
Ans: The exemption under this section can be claimed if the capital gain arises from the transfer of agricultural land. It has been mandated that the agricultural land transferred must be used for agricultural purposes for at least a period of 2 years prior to the date of transfer.
This exemption is solely based upon the fact that the agricultural land is used by the assessee himself or his parents or by HUF irrespective of the ownership of the land. The exemption is allowed irrespective of the fact that the capital gain is arising on the transfer of long-term or short-term capital assets.
Further, the exemption is available only on the transfer of urban agricultural land. Rural agriculture land is not considered as a capital asset and thus it is out of the scope of capital gains tax.
Q16. Which new asset should be acquired for claiming exemption under section 54B?
Ans: Exemption under this section applies if the proceeds from the transfer of the agricultural land are invested in agricultural land. New agricultural land can be situated in rural area or urban area.
Q17. What is the maximum amount of exemption allowed under section 54B?
Ans: Exemption under section 54B will be lower of the following:
- Amount of capital gains arising on the transfer of agricultural land; or
- Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme]
Q18. What is the prescribed time limit for investment in new asset under section 54B?
Ans: To claim an exemption under this section, the assessee needs to purchase the agricultural land within 2 years after the date of transfer of original asset.
Q19. Is the benefit of depositing amount of capital gains in capital gain account scheme is available to claim exemption under section 54B?
Ans: Yes, if till the date of filing the return of income the capital gain arising on transfer of the old land is not utilised (in whole or in part) for purchase of another agricultural land, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme. The new land can be purchased by withdrawing the amount from the said account within the specified time-limit of 2 years.
Q20. What are the circumstances in which exemption under section 54B can be withdrawn?
Ans: The exemption claimed by assessee under section 54B can be withdrawn in the following circumstances:
a) Transfer of new agricultural land within 3 Years: If a taxpayer purchases new agricultural land to claim exemption under section 54B and subsequently transfers the new agricultural land within a period of 3 years from the date of its acquisition, then the benefit granted under section 54B will be withdrawn.
If the agricultural land is sold within a period of 3 years from the date of its purchase, then at the time of computation of capital gain arising on transfer of the new agricultural land, the amount of capital gain claimed as exemption under section 54B will be deducted from the cost of acquisition of the new agricultural land.
b) Amount deposited in capital gains scheme account is not utilized in prescribed time limit: Where amount deposited in capital gains scheme account is not utilised to purchase an agriculture land within 2 years after the date of transfer, the unutilised deposit is deemed to be long-term capital gain of the relevant previous year in which the time-limit of 2 years expires.
Q21. What is Section 54D of the Income Tax Act?
Ans: Section 54D allows exemption from the capital gains arising from compulsory acquisition of land or building which forms a part of an industrial undertaking. The exemption is allowed if the amount of capital gains is invested in another land or building.
Q22. Who can claim exemption under section 54D?
Ans: This exemption is available to all assessee i.e. individual, HUF, firm or company, etc.
Q23. Which capital asset should be transferred to claim the exemption under section 54D?
Ans: The exemption under Section 54D is available for the capital gain arising by way of compulsory acquisition of land or building, forming part of an Industrial undertaking. Such land or building should be used by the assessee for the business of the industrial undertaking for a period of 2 years before the date of compulsory acquisition.
The land or building forming part of the industrial undertaking may be a short-term capital asset or a long-term capital asset. Both of them enjoy the exemption.
Q24. Which new asset should be acquired for claiming exemption under section 54D?
Ans: The exemption is allowed if assessee purchases any other land or building or any right in any other land or building or construct any other building for the purposes of shifting or re-establishing the undertaking or setting up another industrial undertaking.
Q25. What is the maximum amount of exemption allowed under section 54D?
Ans: Exemption under section 54D will be lower of the following:
- Amount of capital gains arising on transfer of land or building; or
- Investment in new land or building [including the amount deposited in Capital Gains Account Scheme]
Q26. What is the prescribed time limit for investment in new asset under section 54D?
Ans: The assessee has to purchase new asset within a period of 3 years after the date of compulsory acquisition of the undertaking.
Q27. Is the benefit of depositing amount of capital gains in capital gain account scheme is available to claim exemption?
Ans: Yes, if the capital gain arising on transfer of the land or building is not utilised (in whole or in part) for purchasing any land or building or any right in any other land or building of for construction of any building till the date of filing the return of income, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme. The new land or building can be purchased or constructed by withdrawing the amount from the said account within the specified time-limit of 3 years.
Q28. What are the circumstances in which exemption under section 54D can be withdrawn?
Ans: The exemption claimed by assessee under section 54D can be withdrawn in the following circumstances:
a) Transfer of new land or building within 3 Years: If a taxpayer purchases new land or building to claim exemption under section 54D and subsequently transfers such land or building within a period of 3 years from the date of its acquisition/construction, then the benefit granted under section 54D will be withdrawn.
If the new land or building is sold within a period of 3 years from the date of its purchase/construction, then at the time of computation of capital gain arising on transfer of the new land or building, the amount of capital gain claimed as exemption under this section will be deducted from the cost of acquisition of the such land or building.
b) Amount deposited in capital gains scheme account is not utilized in prescribed time limit: If the amount deposited in the Capital Gains Account Scheme in respect of which the taxpayer has claimed exemption is not utilised within the specified period for purchase or construction of another land or building, then the unutilised amount will be taxed as income for the previous year in which the specified period of 3 years gets completed.
Q29. What is Section 54EC of the Income Tax Act?
Ans: Section 54EC allows for an exemption on capital gains arising from the transfer of land, buildings, or both. This exemption is granted if the taxpayer invests in bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation Limited (REC).
Q30. Who can claim exemption under section 54EC?
Ans: This exemption is available to all assesses, i.e. individual, HUF, firm or company, etc. irrespective of their residential status during the previous year.
Q31. Which capital asset should be transferred to claim the exemption under section 54EC?
Ans: The exemption under Section 54EC is available from the capital gain arising from transfer of a long-term capital asset, being land or building or both.
Which new asset should be acquired for claiming exemption under section 54EC?
The exemption is allowed if assessee makes investment in the bonds issued by following entities:
(a) National Highway Authority of India (NHAI Bonds)
(b) Rural Electrification Corporation Limited (REC Bonds)
(c) Any other bond notified by the Central Government
What is the maximum amount of exemption allowed under section 54EC?
The amount of exemption will be the lower of the following:
- The amount of capital gains, whether long-term or short-term;
- The amount invested in specified bonds; or
- Rs. 50,00,000
Q32. What is the prescribed time limit for investment in new asset under section 54EC?
Ans: The investment should be made within six months of the transfer of the land, building, or both.
Q33. Is the benefit of depositing amount of capital gains in capital gain account scheme is available to claim exemption under section 54EC?
Ans: No, the benefit of depositing unutilised amount of capital gains isn’t available to claim section 54EC.
Q34. What are the circumstances in which exemption under section 54EC can be withdrawn?
Ans: The exemption claimed by assessee under section 54EC can be withdrawn in the following circumstances:
a) Transfer of bonds within 5 years: If the bonds are transferred within five years, the previously exempted amount of capital gains from the transfer of the original asset will be subject to tax as a long-term capital gain in the previous year in which the bonds are transferred. As a result, the exemption previously granted for the transfer of the original long-term capital asset is forfeited.
b) Conversion of bonds within 5 Years: If the bonds are converted into cash within five years of their acquisition, the previously exempted amount of capital gains will be subject to tax as a long-term capital gain in the previous year in which the bonds are converted into cash.
Q35. What is Section 54EE of the Income Tax Act?
Ans: Section 54EE provides an exemption on capital gains from the transfer of long-term capital assets if the taxpayer uses the proceeds to purchase long-term assets as specified by the government to fund start-ups.
Q36. Who can claim an exemption under section 54EE?
Ans: This exemption is available to all assesses, i.e. individual, HUF, firm or company, etc. irrespective of their residential status during the previous year.
Q37. Which capital asset should be transferred to claim the exemption under section 54EE?
Ans: The exemption under Section 54EE is available from the capital gain arising from transfer of any long-term capital asset.
Q38. Which new asset should be acquired for claiming exemption under section 54EE?
Ans: The exemption is allowed if assessee makes investment in long-term assets as notified by the Central Government to finance the start-ups.
Q39. What is the maximum amount of exemption allowed under section 54EE?
Ans: The amount of exemption will be the lower of the following:
- Amount of long-term capital gains;
- Amount invested in specified assets; or
- Rs. 50,00,000
Investment in long-term specified assets during the financial year in which the original asset is transferred and in the subsequent financial year should not exceed Rs. 50 lakh.
Q40. What is the prescribed time limit for investment in new asset under section 54EE?
Ans: The investment should be made within six months of the transfer of the long term capital asset.
Q41.Is the benefit of depositing amount of capital gains in capital gain account scheme is available to claim exemption under section 54EE?
Ans: No, exemption under this section isn’t allowed if the amount of unutilised capital gains is deposited into Capital Gains Account Scheme.
Q42. What are the circumstances in which exemption under section 54EE can be withdrawn?
Ans: The exemption claimed by assessee under section 54EE can be withdrawn in the following circumstances:
a) Transfer of new asset within 3 years: If long-term specified assets are transferred within 3 years, the exempted amount of capital gain, arising from the transfer of original asset, is chargeable to tax as long-term capital gain in the previous year in which bonds are transferred. Thus, the exemption granted earlier on transfer of original long-term capital asset stands forfeited.
b) Conversion of bonds into money within 3 Years: If long-term specified assets are converted into money within a period of 3 years from the date of its acquisition, the exempted amount of capital gain is chargeable to tax as long-term capital gain in the previous year in which such assets are converted into money.
Q43. What is Section 54F of the Income Tax Act?
Ans: Section 54F provides exemption for capital gains arising from the transfer of a long-term capital asset (other than a residential house property) if the gain is invested in one residential house property in India within the prescribed time limit.
Q44. Who is eligible to claim exemption under Section 54F?
Ans: The exemption is available only to individuals and Hindu Undivided Families (HUFs).
Q45. What types of assets qualify for exemption under Section 54F?
Ans: what are criterias to claim exemption under section 54F?The exemption is available for long-term capital gains arising from the transfer of a capital asset other than a residential house property. Examples include jewellery, shares, securities, and plot of land.
Q46. What types of new assets are eligible for the exemption under Section 54F?
Ans: The exemption is available if the net sale consideration is invested in one residential house property located in India. This can be achieved by purchasing or constructing the property.
Q47. What is the time limit for investing in the new asset?
Ans: To claim exemption under section 54F, the taxpayer should purchase another house within a period of one year before or two years after the date of transfer of old house or should construct another house within a period of three years from the date of transfer.
If the net consideration is deposited in a capital gain account scheme by the due date for the return of income, the assessee must purchase or construct a residential house within 2 or 3 years after the date of transfer of the original asset respectively.
Q48. What is the maximum amount of exemption allowed under section 54F?
Ans: The maximum amount of exemption allowed under section 54F is as follows:
a) If net consideration is invested in new house property: If net consideration arising from the sale of the original asset is fully utilised to purchase or construct a residential house or deposited in a Capital Gains Account Scheme, the entire capital gain will be exempt from taxation.
b) If partial consideration is invested in new house property: If net consideration arising from the sale of the original asset is not fully utilised to purchase or construct a residential house or deposited in a Capital Gains Account Scheme, the exemption will be granted in proportion to the amount invested, as follows:
A x B/C
Wherein,
A = Investment in residential house plus amount deposited in capital gain account scheme. However, the total amount cannot exceed Rs. 10 crores (Refer Note 1)
B = Long-term Capital Gains
C = Net consideration from transfer of original asset
Note: If the total amount invested in the new house property and the amount deposited in the Capital Gain Account Scheme exceeds Rs. 10 crores, the threshold limit will be adjusted first with the amount invested in the new house property. If the investment in the new house property is less than Rs. 10 crores, the remaining balance will be considered to be from the Capital Gain Account Scheme.
Note 1: Inserted by the Finance Act, 2023 with effect from assessment year 2024-25. Earlier, there was no threshold limit for making investment in new house property and depositing amount in capital gain account scheme.
Q49. Under what circumstances is the exemption under Section 54F denied?
Ans: The exemption may be denied if the assessee already owns more than one residential house on the date of transfer of the original asset, with the exception of a house that was acquired within one year prior to the transfer. This means that the assessee can own a total of two residential houses (one already owned and the other acquired within one year prior to the date of transfer under the scheme) and still be eligible for the exemption. If the assessee owns more than two residential houses, and the income from these houses is chargeable under the head income from house property, the exemption will not apply.
Q50. Under what circumstances can the exemption under Section 54F be forfeited?
Ans: The exemption claimed by assessee under section 54F can be withdrawn in the following circumstances:
a) Acquisition of Second House: Where assessee purchases a residential house, other than the new house, within two years after the date of transfer of original asset or constructs a residential house, other than the new house, within three years after the date of transfer of original asset and the income from such house is chargeable to tax under the head Income from House Property, the exempted long-term capital gain becomes taxable in such previous year.
b) Non-Utilisation of amount deposited in capital gain account scheme:
Where amount deposited in capital gain account scheme is not utilised to purchase a residential house within 2 years after the date of transfer or to construct a residential house within 3 years of the date of transfer, the unutilised deposit shall be deemed to be long-term capital gain of the relevant previous year in which the time-limit of 3 years expires.
c) Transfer of new house within 3 Years: If new house so purchased or constructed is transferred within a period of 3 years of its purchase/construction, the exempted capital gain becomes chargeable to tax as long-term capital gain in the relevant previous year in which the transfer takes place.
Q51. What is Section 54G of the Income Tax Act?
Ans: Section 54G provides exemption from capital gains arising from the transfer of assets in the course of shifting an industrial undertaking from an urban area to a non-urban area. The exemption is allowed if the amount of capital gains is invested in new machinery or plant in the area where the undertaking is shifted.
Q52. Who can claim exemption under Section 54G?
Ans: The exemption is available to all assesses, including individuals, HUFs, firms, or companies, if the industrial undertaking, located in an urban area, is shifted to any other area that is not an urban area.
Q53. What is considered an “urban area” for the purposes of Section 54G?
Ans: An “urban area” is any area within the limits of a municipal corporation or municipality that the Central Government declares as an urban area for the purposes of Section 54G. The Central Government makes this determination based on factors such as population, concentration of industries, and the need for proper planning of the area.
Q54. What type of capital asset is qualified for Section 54G exemption?
Ans: The exemption is available if a capital asset, such as plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area, is transferred as part of the shifting of the industrial undertaking to any area other than an urban area.
Q55. What type of new asset must be acquired or constructed to claim the Section 54G exemption?
Ans: To claim this exemption, the capital gain arising from the transfer of the original asset should be used to purchase new plant or machinery, purchase or construct a building, shift the original asset and its establishment, or incur expenses on other purposes as specified in a scheme framed by the Central Government for this purpose.
Q56. What is the time limit for investing in the new asset for Section 54G exemption?
Ans: The capital gain must be used for the specified purposes within 1 year before or 3 years after the date of transfer. Capital gain that has not been utilized within 1 year before the date of transfer or on or before the due date of furnishing the return of income for the specified purposes, should be deposited in a bank under capital gain account scheme on or before the due date of furnishing return of income.
Are there any specific requirements under section 54G for how the capital gain must be invested in the new asset? The amount of exemption will be the lower of the following:
a) Amount of capital gains, whether long-term or short-term; or
(b) Aggregate of amount invested in new assets, expenses on transfer or establishment and amount deposited in capital gain account scheme.
Q57. What is the maximum amount of exemption allowed under section 54G?
Ans: To claim the exemption, the capital gain must be used to purchase new plant or machinery, purchase or construct a building, shift the original asset and its establishment, or incur expenses on other purposes as specified in a scheme framed by the Central Government for this purpose. The specifics of how the capital gain is invested will vary depending on the type of new asset acquired or constructed.
Q58. What are the circumstances in which exemption under section 54G can be withdrawn?
Ans: The exemption claimed by assessee under section 54F can be withdrawn in the following circumstances:
a) Transfer of new asset within 3 years: If the new asset or any rights in it are sold within 3 years of its purchase or construction, the cost of the new asset will be reduced by the amount of capital gain that was previously exempt. The classification of the capital gain as long-term or short-term on the sale of the new asset will be determined based on the length of time it was held.
b) Non-Utilisation of amount deposited in capital gain account scheme: If the funds deposited in a capital gains account scheme are not used to move an industrial undertaking within 3 years after the date of transfer, the unspent deposit will be considered as capital gain in the relevant previous year in which the 3-year time period expires. The type of capital gain will be the same as the original gain.
Q59. What is Section 54GA of the Income Tax Act?
Ans: Section 54GA is a provision in the Income-tax Act that provides exemption from capital gains arising from the transfer of assets in the course of shifting an industrial undertaking from an urban area to a Special Economic Zone (SEZ). The exemption is allowed if the amount of capital gains is invested in new machinery, plant or building in the SEZ where the undertaking is shifted.
Q60. Who can claim exemption under Section 54GA?
Ans: The capital gain must be used for the specified purposes within 1 year before or 3 years after the date of transfer. Any capital gain that has not been utilized within 1 year prior to the date of transfer or before the due date of submitting the income tax return for the intended purposes, should be deposited into a capital gains account at a bank prior to the due date for submitting the income tax return.
Q61. What type of capital asset is qualified for Section 54GA exemption?
Ans: The exemption is available to all assesses, including individuals, HUFs, firms, or companies, if the industrial undertaking, located in an urban area, is shifted to a Special Economic Zone.
Q62. What type of new asset must be acquired or constructed to claim the Section 54GA exemption?
Ans: The exemption is available if a capital asset, such as plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area, is transferred as part of the shifting of the industrial undertaking to a Special Economic Zone.
Q63. What is the time limit for investing in the new asset for Section 54GA exemption?
Ans: To claim this exemption, the capital gain arising from the transfer of the original asset should be used to purchase new plant or machinery, purchase or construct a building, shift the original asset and its establishment, or incur expenses on other purposes as specified in a scheme framed by the Central Government for this purpose.
Q64. What is the maximum amount of exemption allowed under section 54GA?
Ans: The amount of exemption will be the lower of the following:
(a) Amount of capital gains, whether long-term or short-term; or
(b) Aggregate of amount invested in new assets, expenses on transfer or establishment and amount deposited in deposit scheme.
Q65. What is Section 54GB of the Income Tax Act?
Ans: Section 54GB provides an exemption on the capital gain earned from selling a long-term capital asset being residential property (a house or plot of land. This exemption can be availed if the assessee invests the net consideration in equity shares of an eligible company and the company uses this investment to buy new plant and machinery.
Q66. Who can claim an exemption under Section 54GB?
Ans: This exemption is available only to an ‘Individual’ or a ‘Hindu Undivided Family’.
Q67. Which capital assets are qualified for Section 54GB exemption?
Ans: The exemption under Section 54GB is available only if capital gain arises from the transfer of a long-term capital asset which is residential property (a house or plot of land) (‘original asset’). The exemption is available only if the original asset is transferred between April 1, 2012 and March 31, 2017. However, if the investment is to be made in an eligible start-up, the original asset can be transferred up to March 31, 2022.
Q68. Where is the assessee required to invest for Section 54GB exemption?
Ans: The exemption is allowed if net consideration is invested in equity shares of an ‘eligible company’ and such a company utilizes this amount to purchase new assets.
Q69. What is an eligible company?
Ans: An eligible company is one that is incorporated in India after April 1 of the previous year in which capital gains arise, is engaged in the business of manufacture of any article or thing or in an eligible business, the transferor (assessee) of residential property has more than 25% share capital (or voting right) of such company (after subscription), and the company is either a SME under the MSME Act, 2006 or an eligible start-up.
Q70. What is considered an eligible start-up?
Ans: ‘Eligible Start-up’ means a company engaged in eligible business and satisfies the following conditions: It is incorporated between April 1, 2016 and March 31, 2023, the total turnover of its business does not exceed Rs. 100 crore in any of the previous years between April 1, 2016 and March 31, 2021, and it has been certified as a start-up by the Inter-Ministerial Board of Certification notified by the Central Government.
Q71.What is the time limit to invest in new assets for Section 54GB exemption?
Ans: The assessee should utilize the amount of net consideration from the original asset for the purchase of equity shares of an eligible company or eligible start-up before the due date for furnishing of income-tax return.
Q72. What is the time limit to invest in the new asset by the eligible company?
Ans: The eligible company should utilize the amount for the purchase of new assets within 1 year from the date of subscription in equity shares by the assessee.
If the company does not utilize the amount for the purchase new asset before the due date of furnishing of return of income by the transferor (assessee), it shall be deposited by the company in the capital gain account scheme.
Q73. What is the maximum amount of exemption allowed under section 54GB?
Ans: The amount of exemption cannot exceed the amount of capital gain
Q74. How to compute exemption under section 54GB?
Ans: The quantum of exemption shall be calculated as follows:
A x B/C
Wherein.
A = Investment in the new asset by the eligible company
B = Capital gains
C = Net Sales Consideration
Q75. What are the circumstances in which exemption under section 54GB can be withdrawn?
Ans: The exemption claimed by assessee under section 54F can be withdrawn in the following circumstances:
a) Shares of the eligible company sold by the assessee: If the individual or HUF sells or otherwise disposes of the equity shares in the eligible company within a period of 5 years from the date of purchase, the earlier granted exemption or proportionate exemption on the capital gain will be considered as long-term capital gain and will be subject to tax in the year of sale or transfer.
b) New Asset sold by the eligible company: If the new asset, such as plant or machinery, is sold or transferred by the eligible start-up company within 5 years (3 years in case of computer or computer software) from the date of acquisition, the previous exemption given on the capital gains invested in the company will be considered as a long-term capital gain and subject to taxation in the year in which the asset is sold or transferred.
c) Non-utilisation of the amount deposited in the capital gain account scheme: When the eligible company fails to use the funds deposited in the capital gains scheme account to acquire new assets within one year of subscribing to equity shares, the earlier granted exemption (or proportionate exemption) will be considered as long-term capital gain of the assessee for the financial year in which the one-year time limit expires.
