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UNION BUDGET 2019

FM Nirmala Sitaraman has presented her maiden budget on 5th July.

Read the highlights here.

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, a few capital gains exemption/deductions are available. Thus, one needs to plan benefits, considering all the relief available under law.
The calculation of capital gains is done in the following manner:

capital gains exemption

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:

Who can get such deductions, what amount of deductions, what assets need to be sold, what assets need to be purchased, and in how much time 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

*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

 

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