The sale of capital assets may lead to capital gains and these gains may attract tax under the Income Tax Act. To save tax on these capital gains, there are few capital gains exemption/deductions that are available. Thus, one needs to plan the benefits, considering all the reliefs available under law.
The calculation of capital gains is done in the following manner:
The idea behind allowing deductions is that the amount of capital gains as calculated above is invested in a new capital asset within a prescribed time period. The deduction is available in respect of such investment made into a new capital asset subject to certain conditions.
In this regard, we will look at the section-wise deductions available under the Act and the various conditions that need to be fulfilled to claim or be eligible for the same.
Questions like:
To whom such deductions are available, up to what amount, what assets need to be sold, what assets need to be purchased and in how much time, etc are answered below:
| Section | Asset sold | Applicability | |
|
54
|
Profit on sale of property used for residence
|
Assessee | Individual / HUF |
| Type of asset transferred | Residential House Property | ||
| Type of transfer | LTCG | ||
| New asset purchased | One Residential House | ||
| Time Limit for investment in new asset | Purchase – Within 1 year before or 2 years after transferConstruction – Within 3 years from transfer | ||
| Exemption Amount | Long-Term Capital GainORCost of new asset whichever lesser | ||
| CGAS* available | Yes – deposit by return filing due date | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If the amount in CGAS is not utilized within the prescribed time limit, such unutilized amount will be taxable as capital gains |
||
|
54B
|
Capital gain on transfer of land used for agricultural purposes
|
Assessee | Individual / HUF |
| Type of asset transferred | Land used for agricultural purposes by the individual / his parent / HUF as the case may be for 2 years prior to transfer | ||
| Type of transfer | LTCG | ||
| New asset purchased | Agricultural land | ||
| Time Limit for investment in new asset | Within 2 years from the date of transfer | ||
| Exemption Amount | Long-Term Capital GainORCost of new asset (land)whichever lesser | ||
| CGAS* available | Yes – deposit by return filing due date | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If the amount in CGAS is not utilized within the prescribed time limit, such unutilized amount will be taxable as capital gains |
||
|
54D
|
Compulsory acquisition of land and building used in an industrial undertaking
|
Assessee | Any assessee |
| Type of asset transferred | Land or building forming part of an industrial undertaking used for the same in the past 2 years prior to transfer | ||
| Type of transfer | LTCG | ||
| New asset purchased | Land or building for shifting or re-establishing the industrial undertaking | ||
| Time Limit for investment in new asset | Within 3 years from the date of transfer | ||
| Exemption Amount | Long Term Capital GainORCost of new asset (land/building)whichever lesser | ||
| CGAS* available | Yes – deposit by return filing due date | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If the amount in CGAS is not utilized within the prescribed time limit, such unutilized amount will be taxable as capital gains |
||
|
54E, 54EA, 54EB,
|
Investment in specified securities
|
Assessee | Any assessee |
| Type of asset transferred | Long-term capital asset | ||
| Type of transfer | LTCG | ||
| New asset purchased | Specified securities – includes government securities, savings certificates, units of UTI, specified debentures, etc. | ||
| Time Limit for investment in new asset | Within 6 months from the date of transfer | ||
| Exemption Amount | Cost of new asset x Capital Gain / Net consideration (maximum up to the capital gain) | ||
| CGAS* available | No | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If a loan is taken on the security of the new specified asset within 3 years, the same will be treated as capital gains |
||
|
54EC
|
Investment in certain bonds
|
Assessee | Any assessee |
| Type of asset transferred | Land or building or both | ||
| Type of transfer | LTCG | ||
| New asset purchased | NHAI bonds or REC bonds, redeemable after 3 years | ||
| Time Limit for investment in new asset | Within 6 months from the date of transfer | ||
| Exemption Amount | Cost of new asset x Capital Gain / Net consideration (maximum up to capital gain) | ||
| CGAS* available | No | ||
| Additional Conditions | 1. If new asset is sold within 3 years (5 years w.e.f. F.Y. 2018-19), amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If a loan is taken on the security of the new specified asset within 3/5 years, the same will be treated as capital gains 3. Investment in specified bonds should not exceed Rs. 50 lakhs during the current and succeeding fiscal year |
||
|
54EE
|
Investment in units of a specified fund
|
Assessee | Any assessee |
| Type of asset transferred | Long-term capital asset | ||
| Type of transfer | LTCG | ||
| New asset purchased | Units notified by Central Government | ||
| Time Limit for investment in new asset | Within 6 months from transfer | ||
| Exemption Amount | Cost of new asset x Capital Gain / Net consideration (maximum up to capital gain) | ||
| CGAS* available | No | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If a loan is taken on the security of the new specified asset within 3 years, the same will be treated as capital gains 3. Investment in specified units should not exceed Rs. 50 lakhs during the current and succeeding fiscal year |
||
|
54F
|
Investment in residential house
|
Assessee | Individual / HUF |
| Type of asset transferred | Any long-term capital asset other than residential house | ||
| Type of transfer | LTCG | ||
| New asset purchased | Residential house property | ||
| Time Limit for investment in new asset | Purchase – Within 1 year before or 2 years after transferConstruction – Within 3 years from transfer | ||
| Exemption Amount | Cost of new asset x Capital Gain / Net consideration (maximum up to capital gain) | ||
| CGAS* available | Yes – deposit by return filing due date | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If the amount in CGAS is not utilized within the prescribed time limit, such unutilized amount will be taxable as capital gains 3. The Individual/HUF cannot own more than 2 house properties (i.e., existing House property and new house property). If another house property is purchased, amount of exemption allowed earlier will be chargeable as capital gains |
||
|
54G, 54GA
|
54G: Shifting of industrial undertaking from urban area to rural area.
54GA: Shifting of industrial undertaking from urban area to SEZ
|
Assessee | Any assessee |
| Type of asset transferred | Capital asset being plant, machinery, land, building or rights in land or building that is used in an industrial undertaking situated in an urban area | ||
| Type of transfer | STCG / LTCG | ||
| New asset purchased | Shifting of industrial undertaking involving:
1. Purchase of new plant/machinery 2. Acquisition of land or construction of a building 3. Shifted old asset and transferred undertaking to a new area 4. Incurred specified expenses |
||
| Time Limit for investment in new asset | 1 year before and 3 years after the date of transfer | ||
| Exemption Amount | Long-Term Capital GainORCost of new asset whichever lesser | ||
| CGAS* available | Yes – deposit by return filing due date | ||
| Additional Conditions | 1. If new asset is sold within 3 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon
2. If the amount in CGAS is not utilized within the prescribed time limit, such unutilized amount will be taxable as capital gains |
||
|
54GB
|
Transfer of residential property by the eligible assessee (Applicable only if transfer made before 31.03.2017. In case investment is made in an eligible startup, transfer to be made before 31.03.2019)
|
Assessee | Individual / HUF |
| Type of asset transferred | Residential property (house or a plot of land) | ||
| Type of transfer | LTCG | ||
| New asset purchased | Equity shares in an eligible company:
1. Newly incorporated 2. Engaged in the business of manufacture or eligible business 3. Assessee has >50% share / voting rights 4. Small or Medium enterprise under MSMEA, 2006 or is an eligible startup |
||
| Time Limit for investment in new asset | By return filing due date | ||
| Exemption Amount | Long-Term Capital GainORCost of new asset whichever lesser | ||
| CGAS* available | Available to the eligible company – by return filing due date | ||
| Additional Conditions | 1. If new asset is sold within 5 years, amount earlier exempted under this section will be reduced from its COA to calculate capital gains thereon.
2. Eligible company to utilize subscription money for the purchase of new plant and machinery subject to certain conditions within 1 year. If not, such unutilized amount shall be chargeable to tax as capital gains. 3. If the amount in CGAS is not utilized by the eligible within the prescribed time limit, such unutilized amount will be taxable as capital gains |
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*CGAS stands for Capital Gains Accounts Scheme i.e., a type of account opened with a bank or specified institution that essentially acts as a means to park the capital gains until it can be used for its prescribed purpose.
Note:
HUF – Hindu Undivided Family
LTCG – Long-term capital gain
COA – Cost of Acquisition
NHAI – National Highway Authority of India
REC – Rural Electrification Corporation
STCG – Short-term capital gain
SEZ – Special Economic Zone
