Exemptions in respect to certain capital Gain

 This article focuses on the exemptions available to an assessee from capital gain tax under Income Tax Act, 1961.

Any profit or gain arising from Transfer of Capital Asset (long term or short term) shall be chargeable under the head capital gain in the year of transfer.

However, there are some exemptions on such capital gains which are explained as under.

1. FOR INDIVIDUAL / HUF ONLY

	SECTION- 54 : Capital Gain on Sale of Residential Property used for residential purpose	SECTION- 54B : Capital Gain on Sale of Urban Agricultural Land used for agriculture
Nature of asset transfer	Long Term Capital Asset	Long Term Capital Asset
Asset transferred	Residential House Property being Building & Land appurtenant there to	Land used for agricultural purposes by the individual / his parent / HUF during 2 years before transfer
New asset to be purchased/ constructed	Residential House in India	Agriculture Land whether in Rural area or Urban area
Time Limit for purchase/ construction	Purchase – Within 1 year before or 2 years after the date of transfer Construction – Complete construction within 3 years from date of transfer	Purchase – Within 2 year after the date of transfer
Deposit Scheme	Available	Available
Exemption Amount	1. Capital Gain, or 2. Cost of New Asset/ Deposit amount Whichever is Lower	1. Capital Gain, or 2. Cost of New Asset/ Deposit amount Whichever is Lower
Conditions	If new asset is transferred within 3 years from date of purchase/ construction then cost of acquisition of new asset will be reduced by exempted capital gain	If new asset is transferred within 3 years from date of purchase then cost of acquisition of new asset will be reduced by exempted capital gain
	SECTION- 54F : Capital Gain on Sale of Long Term Capital Asset other than Residential house property	SECTION- 54GB : Transfer of Residential Property or plot of land
Nature of asset transfer	Long Term Capital Asset	Long Term Capital Asset
Asset transferred	Any Long term capital asset other than residential house property	Residential Property being house or plot of land
New asset to be purchased/ constructed	Residential House Property being Building & Land appurtenant there to	Subscription in Equity Shares of Eligible Company (refer note-3)
Time Limit for purchase/ construction	Purchase – Within 1 year before or 2 years after the date of transfer Construction – Complete construction within 3 years from date of transfer	Shares should be subscribed upto the due date of income  tax return filing
Deposit Scheme	Available	Available to Eligible Company
Exemption Amount	Cost of New Asset   X  ( Capital Gain / Net Consideration )	Cost of New P & M    X  ( Capital Gain / Net Consideration )
Conditions	If new asset is transferred within 3 years from date of purchase/ construction then exempt capital gain will become taxable in year of transfer as long term capital gain	Company should invest the amount of subscription in New Plant & Machinery (P&M) within one year. If Equity Shares or New P&M transferred within 5 years from the date of acquisition/ subscription then exempt capital gain will become taxable in year of transfer in hands of Individual/ HUF.

2. FOR ALL TYPE OF ASSESSEE

	SECTION- 54D : Compulsory Acquisition of Industrial Land & Building	SECTION- 54EC : Investment in certain Bonds
Nature of asset transfer	Long Term Capital Asset	Long Term Capital Asset
Asset transferred	Compulsory acquisition of Industrial land & Building used in business for 2 years prior to date of transfer	Land, Building or both
New asset to be purchased/ constructed	New Land or Building for industrial undertaking	Bonds redeemable after 5 years issued by: NHAI/ RECL/ PFCL/ IRFCL Maximum investment can be Rs. 50 Lakhs
Time Limit for purchase/ construction	Within 3 years from the date of receipt of compensation	Within 6 months from the date of transfer of asset
Deposit Scheme	Available	Not Available
Exemption Amount	1. Capital Gain, or 2. Cost of New Asset/ Deposit amount Whichever is Lower	1. Capital Gain, or 2. Cost of New Asset/ Deposit amount Whichever is Lower
Conditions	If new asset is transferred within 3 years from date of purchase/ construction then cost of acquisition of new asset will be reduced by exempted capital gain	If new asset is transferred or converted into money within 5 years from date of purchase then exempt capital gain will become taxable in year of transfer/conversion
	SECTION- 54G : Shifting of undertaking to Rural Area SECTION- 54GA : Shifting of undertaking to SEZ	SECTION- 54EE : Investment in Units of Funds notified by Central Government
Nature of asset transfer	Long Term/ Short Term Capital Asset	Long Term Capital Asset
Asset transferred	Transfer of P & M or Land or Building for shifting industrial undertaking to Rural area or SEZ as the case may be	Any long term capital asset
New asset to be purchased/ constructed	Purchase/construction of P&M or land or building in such area Shifting original asset to that area Incurred notified expenses	Units of funds notified by Central Government
Time Limit for purchase/ construction	Within 1 year before or 3 years after the date of transfer.	Within 6 months from date of transfer. Maximum investment can be Rs. 50 Lakhs
Deposit Scheme	Available	Not Available
Exemption Amount	1. Capital Gain, or 2. Cost of New Asset/ Deposit amount Whichever is Lower	1. Capital Gain, or 2. Cost of New Asset Whichever is Lower
Conditions	If new asset is transferred within 3 years from date of purchase/ construction then cost of acquisition of new asset will be reduced by exempted capital gain	If new asset is transferred or converted into money within 3 years from date of purchase then exempt capital gain will become taxable in year of transfer/conversion

NOTES

1. Wherever Deposit scheme is applicable, the amount should be deposited in Capital gain account before due date of filing ITR.

2. Amount of Capital gain account deposit should be utilized within the time limit of purchase/ construction of new asset for that specified purpose otherwise it will get taxable as capital gain in the year of expiry of such time limit.

3. Eligible Company
Newly Incorporated eligible Start-up which is engaged in the business of manufacturing or eligible business of innovation, development or improvement with a high potential of employment.

“The assessee should have more than 50% of share capital or voting rights in such eligible business”.

4. New Plant & Machinery in Section 54GB does not include Second hand P&M, Office appliances including computer & software, Vehicles and P&M which are deductible under PGBP.

5. In case of Section 54, assessee can get an exemption from long term capital gains from the sale of house property by investing in up to two house properties. However, the capital gains on the sale of house property must not exceed Rs 2 crores.

6. In case of Section 54F, on the date of transfer the assessee should not own more than one residential house in order to take exemption.

source: https://taxguru.in/income-tax/exemption-capital-gain-tax-complete-guide.html