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Exemptions Available in Computation of Capital Gain

 

Sec.

Assessee to
Whom Allowed

Conditions to be Satisfied

Quantum of
exemption

54

Individual /
HUF

I. Transfer should be of a residential house income of which is chargeable under the head ‘Income from house property’.

2. It must be a long-term capital asset.

3. Purchase of one residential house in India should be within one year before or 2 years after, or construction should be within 3 years after the date of transfer.

As per the amendment made by the Finance Act, 2019, the exemption can be claimed for purchase/construction of two residential houses instead of one. This benefit is available only when the capital gain does not exceed 2 crore. Further, this benefit is available only once in a life time.

Actual amount
invested in new asset

or

the capital gain

whichever is less.

54B

Individual /
HUF

1. Transfer (excluding compulsory
acquisition) should be of agricultural
land.

2. It must have been used in the 2 years
immediately preceding the date of
transfer for agricultural purposes either
by the assessee or his parent or by the
HUF.

3. Another agricultural land should be
purchased within 2 years after the date of
transfer.

Actual amount
invested in new asset

or

the capital gain

whichever is less.

54D

Any Assessee which is an industrial
undertaking

1. There must be compulsory acquisition.

2. The property compulsorily acquired should be land and building forming rt of an industrial undertaking.

3. The asset must have been used in the 2 years immediately preceding the date of transfer of the assessee for the purpose of the business of the undertaking.

4. Within a period of 3 years after the date of compulsory acquisition any other land or building should be purchased or constructed for the use of existing or newly set up industrial undertaking.

—do—

54EC

Any Assessee

1. The asset transferred should be a long- term capital asset being land or  building or both

2. Within a period of 6 months after the date of transfer, the capital gain must he invested in the specified assets i.e. bonds redeemable after 5 years issued by NHAI, RECL & Power Finance Corporation (PFC)

Actual amount
invested subject to
maximum of `50
lakhs in specified
asset

or

the capital
gain

whichever is less.

S4EE

Any assessee

1. The asset transferred should be a long- term capital asset

2. Such asset is transferred on or after 1.4.2016
.

3. Within a period of 6 months after the date of transfer, the capital gain must he invested in the long-term specified assets

Actual amount
invested subject to
maximum of
`50  
lakhs in specified
asset

or

the capital
gain

whichever is less.

54F

Individual!
IIUF

1. The asset transferred should be a long- term capital asset, not being a residential house.

2. Within a period of 1 year before or 2 years after the date of transfer, a one residential house in India should be purchased or constructed within a period of 3 years after the date of transfer.

If the cost of the new residential house is not less than the net consideration then the whole of the capital gain.

Otherwise,

 LTCG x -
Amt. invested / Net Consideration

3. The assessee should not own more than one residential house on the date of transfer.

4. The assessee should not within a period of
2 years purchase or should not within a period of 3 years construct any residential house other than the new asset.

54G

Any Assessee being an
industrial
undertaking

1. Machinery, plant, building, or land used for the business of an industrial undertaking situated in an urban area should have been transferred.

2. Transfer should be due to shifting to any area other than an urban area.
.

3. Within a period of 1 year before or 3 years after the date of transfer purchased  machinery, plant or acquired building or land or constructed building and completed shifting to the new area.

If the cost of the new assets and expenses incurred for shifting are greater than the capital gain, the whole of such capital gain.

Other-wise

capital  gain to the extent of the cost of the new asset

54GA

Any assessee being an
industrial
undertaking

1. Machinery, plant, building, or land used
for the business of an industrial undertaking situated in an urban area should have been transferred.

2. Transfer should be due to shifting to any Special Economic Zone whether developed in any urban area or any other area.

3. Within a period of 1 year before or 3 years after the date of transfer purchased machinery, plant or acquired building or land or constructed building and completed shifting to the new area.

If the cost of the new
assets and expenses
incurred for shifting
are greater than the
capital gain, the whole
of such capital gain.

Otherwise

capital gain to the extent of the Cost of the new asset.

54GB

Individual / HUF

1. There should be a long-term gain from the transfer of a residential property (i.e. a
house or plot of land).

2. Such long-term capital gain should arise to an individual or HUF,

3. The amount of net consideration should be utilized by the individual or HUF before the due dare of furnishing of return of income under section 139(1), for subscription in equity shares of a eligible company (hereinafter referred to as company). If the full amount of net consideration is not utilized for subscription in equity shares, the exemption shall be allowed proportionate to the amount so invested.

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

5. The equity shares of the company or the new asset acquired by the company should not be sold or otherwise transferred by the individual/HUF or the company as the case may be within a period of 5 years from the date of their acquisition. In case of a new asset, being computer or computer software, the period of 5 years has been reduced to 3 years in case of eligible start-ups, by the Finance (No. 2) Act, 2019.

6. The exemption will be available in case of any transfer of residential property made on or before 31.3.2017 [On or before 31.32019 (extended to 31.3.2021 by the Finance (No. 2) Act, 2019) in case of an investment in eligible start up instead of eligible small or medium enterprise]

If the cost of the new equity shares of eligible company is not less than the net consideration then the
whole of the capital
gain.

Otherwise,

LTCG x
Amt. invested / Net consideration price

 

Capital Gain Scheme.—

 

If the new asset is not acquired under sections 54, 54B, 54D, 54F,  54G and 54GA or the full amount could not be invested upto the due date of furnishing the  return of income, the assessee can deposit the desired amount under the Capital Gain  Scheme on or before the due date of return and thus can acquire the asset within the  stipulated time out of money withdrawn from such scheme at a later date. In the case of  section 54EC the Capital Gain Scheme is not applicable. 

 

Consequences if the new asset acquired is transferred within 3 years of its acquisition 

 

Under sections 54, 54B, 54D, 54G and 54GA.—

 

For computation of new Capital Gain  (which can be short-term or long-term), the cost of acquisition of such new asset shall be  reduced by the amount of Capital Gain exempt under sections 54, 54B, 54D, 54G and 54GA  earlier. 

 

Under section 54F.—

 

Besides the new Capital Gain (which can be short-term or long-term),  the Capital Gain exempt earlier under section 54F, shall be long-term capital gain of the  previous year in which new asset is transferred. 

 

Under section 54EC.—

 

If such security acquired is converted into money or any loan is  taken against such securities within 5 years, the Capital Gain exempt under sections 54EC  for such securities earlier shall be long-term Capital Gain of the previous year in which such  conversion takes place or the loan is taken. 

 

Consequences if the amount deposited in Capital Gain Scheme is not utilised within the  stipulated time of 3 years (2 years in case of section 54B).—

 

The unutilised amount shall be  Capital Gain (short-term or long-term depending upon original transfer) of the previous year  in which such period has expired. However, in case of section 54F, proportionate amount  shall be taxable.

 

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