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Capital Gain Exemption arising from Transfer of Residential Property – Section 54GB

Eligible Assessee – Individual and HUF

Eligible Capital Gain – Capital gain arising from transfer of long term capital asset being  a residential house or a plot of land. Transfer of such capital asset should take place between 1st April, 2012 and 31st March,2017.

Condition for exemption – The assessee has before the due date of furnishing return of income utilizes the net consideration for subscription in equity shares in an eligible company. The eligible company should utilize this amount for purchase of an eligible asset within one year from the date of such subscription.
If such company not fully or partially utilizes this amount within one year then such unutilized amount is taxable as capital gain in the year in which such limit of one year expires.

Meaning of Eligible Company – Eligible company means a company who fulfills all of the following conditions

(i) it is a company incorporated in India during the financial year in which such capital gain arises or in subsequent financial year up to due date of furnishing return of income under section 139(1)

(ii) it is engaged in the business of manufacture of an article or a thing

(iii) it is a company in which the assessee has more than fifty per cent share capital or more than fifty per cent voting rights after the subscription in shares by the assessee; and

(iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 (27 of 2006); i.e investment in equipment is more than rs. 25 lakhs but less than rs. 10 crore.

Meaning of Eligible New Asset – new asset means new plant and machinery but does not include

(i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person

(ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house

(iii) any office appliances including computers or computer software

(iv) any vehicle

(v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

Amount of exemption – The amount of exemption will be lower of following

a) amount of capital gain
b) (Investment in eligible asset by eligible company* Capital Gain)/Net sale consideration

Net consideration of original asset – Sale price of capital asset – Expenditure incurred wholly and exclusively in connection with such transfer.

Lock in period – 5 years

If such equity shares or new asset acquired by company are sold or otherwise transferred within a period of 5 years from the date of their acquisition, then the capital gains exempted earlier shall be taxable as capital gains in the year of such transfer.

Benefit of Capital Gains Account Scheme, 1988 is available under this section.

About Rohit Pithisaria

Rohit Pithisaria founded TaxAdda in July 2012. He is Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He is actively writing from very beginning of his professional career and is author of various tax articles and blogs.

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