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Relief from LTCG tax on transfer of residential property if invested in a manufacturing small or medium enterprise

It is proposed to insert a new section 546B so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.

Relief from long-term capital gains tax on transfer of residential property if invested in a manufacturing small or medium enterprise

The Government had announced National Manufacturing Policy (NMP) in 2011, one of the goals of which is to incentivise investment in the Small and Medium Enterprises (SME) in the manufacturing sector.  It is proposed to insert a new section 546B so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery. This relief would be subject to the conditions that-

(i)   the amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139, for subscription in equity shares in the SME company in which he holds more than 50% share capital or more  than 50% voting rights.

(ii)  The amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.

(iii)  If the amount of net consideration subscribed as equity shares in the SME company is not utilized by the SME company for the purchase of plant and machinery before the due date of filing of return by the individual or HUF, the unutilised amount shall be deposited under a deposit scheme to be prescribed in this behalf.

(iv)  Suitable safeguards so as to restrict the transfer of the shares of the company, and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. Further, capital gains would be subject to taxation in case any of the conditions are violated.

(v)  The relief would be available in case of any transfer of residential property made on or before 31st  March, 2017.

The proposed amendments in the provisions of the Income-tax Act shall be effective from 1st April, 2013 and would accordingly apply to assessment year 2013-14 and subsequent assessment years.

Categories: Income Tax

View Comments (2)

  • pl advise can i invest LTCG (a)partly in new house and partly in bonds? or (b) buying two houses with LTCG and availing home loan

  • sir i am a real estate business man. i purchased in 12-05-2010 a land and house for Rs.9,13,800. and sale it on 17 - 08- 2011 at Rs. 11,00,000.00. in 20/07/2011 and 30-03-2012 i purchased another land for Rs. 450000 and Rs. 170000 respectively.
    what is the capital gain tax i want to pay.

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