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(Section 54GB) : Exemption of Long term Capital Gain Tax on Transfer of Residential Property if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company.

  1. Essential conditions to be satisfied to get Exemption Under Section 54GB :

  2. Consequence if equity shares or new asset is transferred within a period of 5 years from the date of its acquisition:

  3. Scheme of Deposit in Capital Gains Accounts Scheme, 1988:

  4. Consequences if the amount deposited in deposit scheme is not utilized for purchase of new asset:

As per section 54GB, any capital gain arising to an individual or HUF from the transfer of a long-term capital asset being a residential property (a house or plot of land) shall be exempt proportionate to the net consideration price so invested in the subscription of equity shares of a eligible company before the due date of furnishing the return of income under section 139(1).

 

1. Essential conditions to be satisfied to get Exemption Under Section 54GB :

  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 date 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 year 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 with in a period of 5 years from the date of their acquisition.

  6. The exemption will be available in case of any transfer of residential property made on or before 31.3.2017. (On or before 31.3.2019 in case of an investment in eligible start up instead of eligible small or medium enterprise).

2. Consequence if equity shares or new asset is transferred within a period of 5 years from the date of its acquisition:

  1. If the equity shares acquired by the individual or HUF are sold or otherwise transferred within a period of 5 years from the date of its acquisition, the capital gain shall arise as under:

    1. the capital gain arising from the transfer of equity shares shall be taxable in the previous year in which such shares are transferred, which can be short-term or long-term depending upon the period of holding. And

    2. the amount of capital gain arising from the transfer of residential property not charged under section 45(1) earlier shall be deemed to be the long-term capital gain of the previous year in which such shares are sold or otherwise transferred and hence taxable.

  2. Similarly, if the new asset (eligible plant and machinery) is sold or otherwise transferred by the company within a period of 5 years from the date of its acquisition, the capital gain shall arise as under:

    1. the capital gain, if any arising from the transfer of such asset will be taxable in the hands of company, which will be short-term as asset is a depreciable asset forming part of block of asset,

    2. the amount of capital gain which was exempt under section 45(1) earlier shall be taxable as long-term capital gain in the hands of such individual or HUF in the previous year in which such asset (eligible plant and machinery) is sold or otherwise transferred.

3. Scheme of Deposit in Capital Gains Accounts Scheme, 1988:

If the amount of net consideration which has been received by the company for the issue of equity shares by the individual or HUF is not utilized by the company for the purchase of a new asset (eligible plant and machinery) before the due date of furnishing the return of income under section 139, the unutilized amount should be deposited before the said due date under a deposit scheme, notified by the Central Government in this behalf and the return furnished by the assessee shall be accompanied by proof of such deposit having been made.

The amount so utilized and the amount so deposited in the deposit scheme shall be deemed to be the cost of a new asset (eligible plant and machinery).

4. Consequences if the amount deposited in deposit scheme is not utilized for purchase of new asset:

Where the amount so deposited in deposit scheme is not utilized, wholly or partly for the purchase of new asset within a period of one year from the date of subscription in equity shares by the individual or HUF, then the difference between:

  1. the exemption allowed under section 54GB earlier; And

  2. the exemption that should have been allowed based on the amount actually utilized, in the purchase of new asset (eligible plant and machinery)

    shall be taxable as long-term capital gain in the hands of individual or HUF in which the period of one year from the date of subscription in equity share by the assessee expires and the company shall be entitled to withdraw such amount in accordance with the scheme.

  1. Meaning of Eligible Company:

  2. “Eligible company” means a company which fulfils the following conditions, namely:—

    1. it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to the assessment year in which the capital gain arises to the due date of furnishing of return of income under section 139(1) by the assessee;

    2. it is engaged in the business of manufacture of an article or a thing or in an eligible business;

    3. it is a company in which the assessee has more than 50% share capital or more than 50% voting rights after the subscription in shares by the assessee; and

    4. it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 or is an eligible start up.

  3. Meaning of “Eligible Start Up”, w.e.f. A.Y. 2017-18

  4. "Eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—

    1. it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;

    2. the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and

    3. it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.

      Note.—Since eligible company also means “eligible start up”. Investment in LLPs shall also be eligible for exemption under section 80GB provided it carries on an eligible business.

  5. Meaning of “Eligible Business”, w.e.f. A.Y. 2017-18

  6. "Eligible business" means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property

  7. Meaning of new asset “New Asset” means new plant and machinery but does not include—

    1. any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;

    2. any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;

    3. any office appliances including computers or computer software;

    4. Provided that in the case of an eligible start-up, being a technology driven start-up so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette, the new asset shall include computers or computer software.

    5. any vehicle; or

    6. any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

  8. Meaning of Net Consideration

    "Net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

 

Related Topics....Under the head 'Capital Gain'

Capital Assets, Capital Gain & Transfer of Capital Assets for Taxation of 'Capital Gain'
Types of Capital Assets for Computing ‘Capital Gain’
Computation Of ‘Period Of Holding of an Asset' for Computing Gapital Gain [Explanation 1(i) to Section 2(42A)]
Transfer Of A Capital Asset [Section 2(47)] for Computing Capital Gain
Transactions Not regarded as ‘Transfer’ for Computing Capital Gain [Section 46 and 47]
Method of Computing Capital Gain [Section 48]
Deemed Cost of Acquisition of Asset for Computing Capital Gain
[Section 55(2)] : Cost of Acquisiton of Assets for Computation of Capital Gain
Capital Gains Accounts Scheme, 1988.
Types of Capital Gain
Tax on Long-Term Capital Gain in certain Cases (Section 112A)
Exemption of Capital Gains under Section 10 and 115JG

Exemption of Capital Gains under Sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GB anf 54H

(Section 54) : Exemption of Capital Gains from the Transfer of Residential House Property
(Section 54B) : Exemption of Capital Gain on Transfer of Land used for Agricultural Purposes
(Section 54D) : Exemption of Capital Gains on Compulsory Acquisition Of Land And Buildings forming part of Industrial Undertaking
(Section-54EC) : Exemption of Capital Gain on Transfer of any Long Term Capital Asset on the basis of Investment in certain Bonds
(Section 54EE) : Capital Gain not to be charged on Investment in Units of a Specified Fund
[Section 54F] : Exemption of Capital Gain on Transfer Of Long-Term Capital Assets other than a House Property
[Section 54G] : Capital Gain on Shifting of Industrial Undertaking from Urban Areas to Non-Urban Areas :
[Section 54GA] : Exemption of Capital Gain on transfer of assets in case of shifting of Industrial Undertaking from an urban area to any Special Economic Zone (SEZ)
(Section 54GB) : Exemption of Long term Capital Gain Tax on Transfer of Residential Property if Net Consideration is Invested in the Equity Shares of a new Start-up SME Company :
(Section 54H) : Extension of time limit for acquiring new Asset or Depositing or Investing amount of Capital Gain, in case of Compulsory Acquisition :

Capital Gain in various Special Cases - How to Find Out or Calculate

  1. Capital Gain from Zero Coupon Bonds

  2. Capital Gain in case of amount Received from an Insurer on account of Damage or Destruction of any Capital Asset [Section 45(1A)]:

  3. Capital Gain in the case of Transfer of Depreciable Assets [Section 50] -

  4. Capital Gain on Conversion of Capital Asset into Stock-in-Trade [Section 45(2)]-

  5. Capital Gain on Transfer of Capital Asset by a Partner/Memeber to a Firm/AOP/BOI as Capital contribution [Section 45(3)]-

  6. Capital Gain on Distribution of Capital Assets by a Firm, AOP/BOI to Partners at the time of Dissolution [Section 45(4)]-

  7. Capital Gain on Compulsory Acquisition of a Capital Asset [Section 45(5)]-

  8. Computation of Capital Gains in case of Joint Development Agreement [Section 45(5A)] [W.e.f. A.Y. 2018-19]

  9. Capital Gain on Conversion of Debentures / Bonds into Shares [Section 47(x), 49(2A) and rule 8AA] :

  10. Capital Gain on Transfer of Shares / Debentures in the hands of Non-Residents (Proviso 1 to Section 48 and Rule 115A) :

  11. Capital Gain on Transfer of Self-Generated Capital Assets :

  12. Capital Gain on Transfer of Bonus Shares -

  13. Capital Gain on Transfer of Right Entitlement -

  14. Capital Gain on Transfer of Securities in Demat Form -

  15. Capital Gains on Distribution of Assets by Companies in Liquidation [Section 46]:

  16. Computation of Capital Gains in the case of Transfer of Land and Building or in Real Estate Transactions [Section 50C] -

  17. Capital Gains on Purchase by Company of its Own Shares or Other Specified Securities [Section 46A]:

  18. Capital Gain on Sale of Land and Building to be computed separately in case of Building Constructed by the Assessee:

 
 
 
 
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