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exemption under the head capital gains

 

Section

Asset

Assessee

Holding Period of Original Assets

Whether Reinvestment Necessary — Time Limit

Other Conditions/ Incidents

Quantum

54

Residential House Property

Individual HUF

3 years

Yes — In Residential House, within 1 year before, or 2 years after the date of transfer (if purchased)
or 3 years after the date of transfer (if constructed).**

See Notes 1, 2, 10 & 12

The amount of gains, or the cost of new asset, whichever is lower

54B

Agricultural Land

Individual

Use for 2 years

Yes — In Agricultural Land, within 2 years after the date of transfer.

Must have been used by assessee or his parents for agricultural
purposes
See Notes 1, 2 and 10

 As above

54D

Industrial Land or Building or
any right therein

Any Assessee

Use for 2 years

Yes — In Industrial Land, Building, or any right therein within 3 years after the date of transfer.

Must have been compulsorily acquired See Notes, 1, 2, 3 and 10

As above

54EC

Any Long-term Capital Asset
(LTCA)

Any Assessee

Shares, Listed Securities, Units of  UTI/Mutual Fund covered u/s. 10(23D) : 1 year Others : 3 years

Yes — Whole or any part of capital gain in bonds redeemable after 3 years and issued on or after 1-4-2006 by NHAI or REC and notified by the Govt.– within 6 months from the date of transfer.

 'See Notes 10, 14 and 15

The amount of gain or the cost of new asset whichever is lower subject to Rs. 50,00,000 per assessee during any financial year  for investments made on or after 1-4-2007. Also investment in bonds
notified before 1-4-2007 would be
 subject to conditions laid down in notification including limiting condi-tions (i.e., Rs. 50 lakhs per assessee)

54F

Any Capital Asset (not being
a residential house)

Individual HUF

 Shares, Listed, Securities, Units of UTI/Mutual Fund covered u/s. 10(23D) :1 year Others : 3 years

 Yes — In Residential House, within 1 year before,  or 2 years after the date of transfer (if purchased), or 3 years after the date of transfer (if constructed).

See Notes 2, 4, 5, 10
12 & 16

If the cost of the specified asset is
not less than Net Consideration of
the original asset, the whole of the
** gains. If the cost of the specified
 asset is less than the Net Consider-
ation, the proportionate amount of the gains.

54G

Industrial land or building or
plant or machinery

Any Assessee

—

 Yes — In similar assets and expenses on shifting of original asset, within 1 year before, or 3 years after the date of transfer.

See Notes 1, 2 and 6

The amount of gains, or the aggregate cost of new asset and
shifting expenses, whichever is lower.

54GA

Industrial land or building or
plant or machinery

 Any  Assessee

—

Yes — In similar assets and expenses on shifting of original assets to a Special Economic Zone – within 1 year before or 3 years after the date of
transfer.

See Notes 1, 2 and 7

The amount of gains, or the aggregate cost of new asset and shifting expenses, whichever is lower

115F

‘Foreign Exchange Asset’
(See Note 8)

Non-Resident Indian

Shares, Listed Securities, Units of UTI/Mutual Fund covered u/s. 10(23D) : 1 year Others : 3 years

Yes— In 'Specified Assets' 
or Specified Savings Certificates of
Central Government, within 6 months after the date of transfer
 

(See Note 9) See Notes 8, 9 and 13

Same as u/s. 54F above.

** Relevant Circulars — See Notes 11 and 12

Notes:

1. If the new asset is transferred, within a period of 3 years from the date of purchase/construction, the cost shall be reduced, in the year of transfer, by the gains exempted earlier.

2. If the gains are not reinvested as specified, before the due date of filing the return u/s. 139(1), then the amount not so reinvested is required to be deposited on or before that date in an account in a specified bank/institution and utilised for the purchase/construction of the relevant asset in accordance with the notified scheme within specified time limit in order to continue availing of the benefit of exemption [For the notified scheme, See 172 ITR (St.) 91].

3. Industrial land or building must have been used for the purposes of the business of the undertaking. New asset must be purchased/constructed for the purposes of shifting/reestablishing/setting up industrial undertaking.

4. The assessee must not own more than one residential house other than the new house on the date of the transfer of the original asset.

5. The assessee must neither purchase within two years after or construct within three years after the day of transfer, any other residential house other than the one in which reinvestment is made nor transfer the new asset within 3 years from the date of its acquisition/construction, otherwise the amount of gains earlier exempted shall be deemed to be LTCG in the year of such transfer.

6. The industrial undertaking must have been situated in an urban area and the transfer must have been effected as a result of shifting to a non-urban area.

7. The industrial undertaking must have been situated in an urban area and the transfer must have been effected as a result of shifting to a Special Economic Zone as defined in clause (za) of the Special Economic Zones Act, 2005.

8. ‘Foreign Exchange Asset’ means any of the assets listed in Note 9 below which assessee has acquired or purchased with, or subscribed to in convertible foreign exchange.

9. A ‘Specified Asset’ u/s. 115F means :

i. Shares in an Indian co.;

ii. Debentures issued by Indian co. which is not a pvt. co.;

iii. Deposits with an Indian co. which is not a private co.;

iv. Any security of the Central Government as defined in S. 2(2) of the Public Debt Act;

v. Other notified assets.

10. In case of compulsory acquisition of asset under any law, time for reinvestment or deposit in specified assets, of sale proceeds or capital gains as the case may be, as prescribed by Ss. 54, 54B, 54D, 54EC and 54F shall be reckoned from the date of receipt of compensation as per provisions of S. 54H.

11. Board Cir. No. 471 dtd. 15.10.1986 (162 ITR (St) 41) has clarified that cases of allotment of flats under the self financing scheme of the Delhi Development Authority (DDA) should be treated as cases of ‘construction’ for the purposes of Ss. 54 and 54F.

Similarly, the Board Cir. No. 672 dtd. 16.12.1993 (205 ITR (St) 47) has clarified that allotment of flats/houses by co-op. societies and other institutions, whose schemes of allotment and construction are similar to those of DDA (as mentioned in para 2 of aforesaid Cir. No. 471), would be treated as ‘construction’ for the purposes of Ss. 54 and 54F.

12. Board Cir. No. 667 dt. 18.10.1993 (204 ITR (St) 103) has clarified that for the purpose of computing exemption u/s. 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections.

13. Where new asset is transferred within 3 years from date of its acquisition, or converted into money or any loan/advance is taken on securities of specified bond, the amount of gains earlier exempted shall be deemed to be LTCG in the year of such transfer or conversion.

14. Cost of specified asset shall not be considered for:

— rebate u/s. 88 up to Assessment Year 2005-06;

— deduction u/s. 80C from Assessment Year 2006-07.

15. Where new asset is transferred within 3 years from date of its acquisition or converted into money or any loan/advances is taken on the security of specified assets, amount of gains earlier exempted shall be deemed to be LTCG in year of such transfer or conversion.

16. Where new asset is transferred within one year from date of its acquisition, amount of gains earlier exempted shall be deemed to be LTCG in the year of such transfer.

No Transfer for the purpose of Capital Gain

Following transactions are not regarded as transfer for the purpose of Capital Gain. (S. 47)

Distribution/Transfer of a Capital Asset

i. On total or partial partition of H.U.F. [S. 47(i)]

ii. Under a gift/an irrevocable trust (except shares, debentures or warrants issued under ESOP/ESOS) or under a will [S. 47(iii)]

iii. *By a co. to its subsidiary co. if Parent Co. held all the shares of Indian subsidiary co. [S. 47(iv)]

iv. *By a subsidiary co. to the holding co. if the Indian holding co. held all the shares of the subsidiary co. [S. 47(v)]

v. By the amalgamating co. to the Indian amalgamated co. in a scheme of amalgamation. [S. 47(vi)]

vi. Being shares held in an Indian co. by the amalgamating foreign co. to the amalgamated foreign co. in the scheme of amalgamation if [S. 47(via)]

  • at least 25% of shareholders of the first co. remains shareholders of the later co., and

  • there is no capital gain tax on such transfer in the country of first co.

vii. A capital asset by a banking company to a banking institution in a scheme of amalgamation sanctioned and brought into force by the Central Government u/s. 45(7) of the Banking Regulation Act, 1949 [S. 47(viaa)]

viii. By the demerged company to the resulting company if the resulting company is an Indian company. [S. 47(vib)]

ix. Being share or shares held in an Indian co. by the demerged foreign co. to the resulting foreign co., if

  • the shareholders holding not less than 3/4th in the value of shares of the demerged foreign co. continue to remain shareholders of the resulting foreign co.

  • there is no capital gain tax on such transfer in the country in which the demerged foreign co. is incorporated. [S. 47(vic)]

x. Transfer by a predecessor co-operative bank to a successor co-operative bank in a business reorganisation. [S. 47(vica)]

xi. Transfer of shares of a predecessor co-operative bank against shares of successor co-operative bank in a business reorganisation [S.47(vieb)]

xii. Transfer or issue of shares in case of a demerger to shareholders of demerged co. by resulting co. [S. 47(vid)]

xiii. Being shares held in the amalgamating co. by a shareholder in a scheme of amalgamation against the allotment of shares in the Indian amalgamated co. [S. 47(vii)]

xiv. Being bonds or shares referred to in S. 115AC(1), made outside India by a non-resident to another non-resident. [S. 47(viia)]

xv. Being items of national importance specified in S. 47(ix) trf. to a University, National Museum, etc.

xvi. By conversion of bonds, debentures, etc. into shares or debentures of same co. [S. 47(x)]

xvii Conversion of Foreign Currency Exchangeable Bonds referred to in S. 115AC(1)(a) into shares or debentures of any company. [S. 47(xa)]

xviii. Being membership of a recognised stock exchange, on or before 31.12.1998, in exchange of shares by a person other than a co. to a co. “Membership of recognised stock exchange” is defined by explanation to S. 47(xi).

xix. Being land of Sick Industrial co., under a scheme of SICA 1985, where such co. is managed by its workers co-operative. [S. 47(xii)]

xx. Transfer of a capital asset where an AOP or a BOI is succeeded by a company in the course of demutualisation or corporatisation of a recognised stock exchange in India under a scheme approved by SEBI provided all the assets and liabilities of the AOP/BOI are taken over by the successor company. [S. 47(xiii)]

xxi. Sale/Transfer of any C.A. where a firm/Sole Proprietary Concern (SPC) is succeeded by a co., provided following conditions are complied. [S. 47(xiii/xiv)]

Important Conditions For firms

a. All partners become shareholders in ratio of capital.

b. Aggregate shares of old partners not to reduce below 50% of the total voting power for min. 5 years.

c. All assets and liabilities are taken over by new co.

d. Partners not to receive any benefit (other than shares).

important conditions For Sole Proprietary Concern (SPC) :

a. Proprietor’s shares not to reduce below 50% for minimum 5 yrs.

b. Conditions c & d of firms also applicable to SPC.

xxii. Transfer of a membership right in a recognised stock exchange for acquisition of shares, and trading or clearing rights under a scheme of demutualisation or corporatisation approved by SEBI. [S. 47(xiiia)]

xxiii. Transfer in a scheme of lending of any securities subject to the guidelines issued by SEBI, established under sec. 3 of SEBI Act, 1992 (15 of 1992) (or RBI constituted under sec. 3(1) of the RBI Act, 1934) [S. 47 (xv)].

xxiv. Transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government [S.47(xvi)] (retrospective from A.Y. 2008-09).

Notes : * If there is any transfer of a Capital asset to stock-in-trade after 29.2.1998 then clauses (iii) and (iv) given above will not apply. Please refer S. 47A for withdrawal of exemption in certain above given cases.

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