The exemption provisions of section 54D of the Income Tax Act comes into play only if the following norms are satisfied –

1. There is a capital gain on account of compulsory acquisition of land or building, forming part of the industrial undertaking; and

2. The assessee has re-invested the amount for acquiring new land or building for the purpose of shifting or re-establishing the industrial undertaking.

The present article attempts to cover all the provisions governing provisions of section 54D of the Income Tax Act.

Conditions to be fulfilled to avail exemption benefit under section 54D

In order to claim the exemption under section 54D of the Income Tax Act, the assessee is required to satisfy the following listed conditions –

1. Exemption under section 54D is available to any category of person on compulsory acquisition of land or buildings (which is forming part of industrial undertaking).

2. Exemption under section 54D is available to both the Long Term Capital Asset and Short Term Capital Asset.

3. It is mandatory that the transferred asset should have been used for the industrial purpose for a period of at least two years before the date of acquisition.

4. The transferor is required to invest the amount in purchasing any other land or building for the purpose of shifting or re-establishing the industrial units. The said amount needs to be invested within a period of three years from the date of receipt of the compensation.

In case all the above measures are satisfied, the assessee would be eligible to avail exemption benefit under section 54D.

Amount of exemption available under section 54D of the Income Tax Act

If the assessee satisfies all the prescribed conditions of section 54D, then, such assessee would be eligible lower of the following amount as an exemption –

1. Capital gain on compulsory acquisition of land or building; or

2. Amount of investment in acquiring new land or building.

Withdrawal of exemption claimed under section 54D

Once the exemption is claimed under section 54D of the Income Tax Act, the assessee is mandatorily required to hold the newly acquired land or building for a period of three years from the date of acquisition.

In case the newly acquired land or building is transferred before the expiry of a period of three years. Then, at the time of calculating the capital gain of newly acquired land or building, the cost of acquisition would be reduced by the amount of capital gain exempted under section 54D.

Capital Gain Deposit Account Scheme

In order to claim the exemption under section 54D, the assessee is required to re-invest the amount in acquiring new land or building within a period of three years from the date of receipt of compensation.

However, in case the assessee is not able to invest the amount for acquiring new land or building till the date of return filing, then, such unutilized amount is required to be transferred to ‘Capital Gains Deposit Account Scheme’.

After transferring the fund to the ‘Capital Gain Deposit Account Scheme’, the assessee can utilize the same for acquiring the new land or building within the prescribed time. If the assessee fails to utilize the entire amount deposited in the account, then, such unutilized amount will be taken as income of the previous year in which the specified period of 3 year expires.

Read Also:-

1 Exemption under section 54GB of Income Tax Act 1961
2 Section 54GA Exemption under Income Tax Act, 1961
3 Capital gain exemption under section 54G of Income Tax Act, 1961
4 Section 54F Capital Gain Tax Exemption
5 Section 54EE Tax Exemption on long term capital gain
6 Section 54EC Exemption available on investment in certain specified bonds
7 Section 54D Exemption from capital gain on compulsory acquisition of land or buildings forming part of industrial undertaking
8 Exemption from capital gain on transfer of agricultural land – Section 54B
9 Exemption available under section 54 of Income Tax Act

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