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People gets money when sell property, BUT, they also get tension when they come to know that this money brings a big Capital Gain tax on them.

Income tax gives some exemptions from this capital gain. I tried to sum up all of these in following quick note:

Sec 54 - Long Term Capital gains arising from the transfer of residential house property: available only for individual or a HUF on investing Long term capital gain amount in acquiring new house property.

Sold house must be residential house, whose income is taxable in income from house property. Board circular no 538 dt 13th July 1989 says it can be self occupied and income from house property can be NIL or negative by section 23(2)(a).

The assessee has purchased a residential house within one year before the transfer or within 2 years after the date of transfer. If not, he has constructed a house within 3 years from the date of transfer. House must be completed within 3 years. But it can be commenced before transfer of house. CIT v J.R. Subramanya Bhat (1986) 28 Taxman 578 (Kar.)  in this  a means any if one house is purchased and still capital gain amount  is left assessee can purchased or built more house or houses for this exemption. For example if LTCG on sale of house is 78 lac and within 1 years one house is being purchased for 40 lac and next year (within 2 year limit) other one is being purchased for 42 lac then full capital gain is exempt.

The new acquired property can’t be sold within 3 years from acquisition date. If it is done then LTCG which was exempt will be reduced from the cost of acquisition of new house. For example if LTCG of 46 lac is used for purchase of 50 lac property. In 2 years it is sold in 60 lac. Then STCG will be 60 lac – 4 lac  (50 lac – 46 lac LTCG which was exempt before)

As you can understand, in practical whole LTCG can’t be utilized in same year. So balance amount can be deposited in a public sector bank under Capital Gain Accounts Scheme, 1988. One thing to be noted Rural branches of bank is not covered in sec 54. This amount must be deposited before due date of furnishing of return. But in Esther Christopher Mascarenhas v. ITO (2011) it is decided that for claiming exemption u/s 54 filing return on or before due date is not mandatory. So deposit amount in Captial Gain Accounts Scheme before due date is mandatory but filing return is not for exemption u/s 54.

Sec 54B-Capital gains arising from the transfer of land used for agricultural purpose: available only for individual or a HUF on investing capital gain not necessary LTCG amount in acquiring new land for agricultural purpose.

Sold land must be in agricultural use for a period of 2 years immediately preceding the transfer.

New land must be acquire within 2 years and this is also for agricultural use.

One thing to note, if sold land is in rural area then gain is not chargeable to tax as it is not capital asset.

New land can’t be sold within 3 years else same treatment as explained above in sec 54.

Capital Gains Accounts scheme, 1988 is also available to this also.

Sec 54D-Capital gains arising from the compulsory acquisition of land and building forming part of industrial undertaking: available for all.

Sold land or building must be in industrial purpose use  for a period of 2 years immediately preceding the transfer.

New land and building must be purchased or constructed within 3 years from the date of receipt of compensation.

New land or building must be used for shifting or re-establishing the said undertaking or setting up another industrial undertaking.

Exemption Amount: Same as above if all Capital gain is invested then full exemption. But if some left unused then it will be taxable.

New land can’t be sold within 3 years else same treatment as explained above in sec 54.

Capital Gains Accounts scheme, 1988 is also available to this also.

Sec 54EC-Long Term Capital gains not chargeable if invested in certain bonds: available for all

Within 6 months from the date of transfer, the assessee must invest whole capital gain in bonds, which are redeemable after 3 years and issued by:

1. National Highways Authority of India   OR

2. Rural Electrification Corporation Ltd

After 1st April 2007 an assessee can’t invest more than 50 lakh in one financial year.

So if assessee get 80 lakh as LTCG in Feb-12.  He can invest 50 lakh in March-12 and 30 Lakh in April-12. Then he will get full exemption as he didn’t invest more than 50 lakh in one F.Y.

This investment for sec 54EC can’t be claimed in sec 88 or sec 80 C.

Capital Gains Accounts scheme, 1988 is NOT available to this.

If these bonds are redeemed within 3 years this exempt LTCG will be taxable as LTCG in year when transfer was held.

Sec 54F-Long Term Capital gains which is not from house property: available only for individual or a HUF

The assessee has purchased a residential house within one year before the transfer or within 2 years after the date of transfer. If not, he has constructed a house within 3 years from the date of transfer. House must be completed within 3 years. But it can be commenced before transfer of house. CIT v J.R. Subramanya Bhat (1986) 28 Taxman 578 (Kar.)

The new acquired property can’t be sold within 3 years from acquisition date

The assessee should not own on the date of transfer more than one residential house (OTHER THAN NEW). He should NOT purchase new house in 2 years or construct in 3 years (OTHER THAN NEW)

For this exemption NET CONSIDERATION (not only capital gain) must be invested. If investment is less then exemption will be in proportionate with amount invested. i.e. (cost of new house x capital gains / net consideration).

Capital Gains Accounts scheme, 1988 is also available to this also

Sec 54G-Capital gain arising on transfer of assets in cases of shifting of industrial undertaking from urban area. available for all

A capital asset used for industrial undertaking situated in municipal corporation or municipality has been shifted on order of Govt.

For exemption the assessee should within a period of one year before or 3 years after:

a. purchase new machinery or plant in that area to which said undertaking is shifted

b. acquire building or land or construct building for business purpose;

c. Shifted the original asset and transferred the establishment of such undertaking to such area AND

d. Incurred expense for other purpose as specified in the scheme framed by the Government.

If full capital gain is invested then full exemption else difference will be chargeable in sec 45 as income from business. Cost of new asset will be reduced by capital gain exemption amount but it can’t be negative.

Capital Gains Accounts scheme, 1988 is also available to this also

Sec 54GA-Capital gain arising on transfer of assets in cases of shifting of industrial undertaking from urban area to SEZ. available for all

All provisions are same as 54G except in this new acquired asset can’t be transferred within 3 years. Else exemption will be taken back




Category Income Tax, Other Articles by - CA Prashant Gupta 



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