👍👍👍👍👍👍👍Exemptions from Capital Gain under Income Tax act, 1961

Clipped from: https://taxguru.in/income-tax/exemptions-capital-gain-income-tax-act-1961.html

Gist of Section 45:

Any Profit or gain arising from the transfer of Capital asset is taxable as a Capital Gain u/s 45 of the Income Tax act, 1961. It is relevant to determine whether Capital Gain is short term capital gain or long term capital gain as it affects the rate of Income Tax.

What is the Capital Asset?

Capital Asset means

1. Property of any kind,

2. Any securities held by FII,

3. Any Unit linked insurance policies,

but does not include the following

1. Stock in trade,

2. Personal effects i.e., movable property for personal use except

1. Jewellery

2. Archaeological Collections

3. Drawings

4. Paintings

5. Sculptures

6. Any work of art

3. Rural Agricultural land in India,

4. 5% Gold Bonds,

5. Special Bearer bonds,

6. Gold Deposit Bonds,

What is Long term or Short Term Capital Gain?

Capital Gain could be short term or long term capital gain on the basis of holding of a Capital Asset.

Any Capital Asset held by assessee for more than 36 Months immediately preceding the date of transfer will be treated as Long Term Capital Asset otherwise Short term Capital Gain except following

Sr No.ParticularsPeriod of Holding
1.Shares listed on recognized stock exchange12 Months
2.Units of equity oriented mutual fund12 Months
3.Listed securities like Debentures, Government Securities12 Months
4.Units of UTI12 Months
5.Zero Coupon Bonds12 Months
6.Unlisted shares of Public Company24 Months
7.Land or building or both24 Months

Several exemptions are available under income tax act against the Capital Gain on fulfilment of certain conditions which are as follows.

SectionAssesseeType of GainAsset transferredAsset to be procuredConditionsAmount to be invested
54Individual or HUFLTCGResidential House Propertyi.   1 Residential House Property,ii.   2 residential House Property if Capital gain exceeds 2 crores.1)   Time Limit for the procurement – within 1 year before or 2 years after the date of transfer or constructed within 3 years of the date of transfer.2)   Option ii. (2 Residential House if Capital gain > 2 crores) is permitted only once in lifetime.Capital Gain
54BIndividual or HUFLTCGAgricultural LandAgricultural Land1)  Land should have been used for agricultural purpose at least 2 years prior to the date of Transfer by the assessee or his parents.2)  Time limit for the procurement – 2 years from the date of Transfer.Capital Gain
54DAny assesseeLTCGCompulsory acquisition of Land or building or its rightsLand or building or its rights procured or constructed for business1)  Land or building should have been used by assessee for business at least 2 years prior to the date of transfer.2)  Time Limit for the procurement for the purpose of shifting, re-establishing or setting up an industrial undertaking – 3 years from the date of transferCapital Gain
54ECAny AssesseeLTCGLand, Building or bothLong Term Specified asset i.e., Bonds of NHAI or RECL1)  Time Limit – 6 months from the date of transfer.2)  Maximum Investment – 50 Lakhs for the FY in which asset transferred and subsequent FY3)  Lock in period for the investment – 5 years from the date of acquisition otherwise exempted Capital Gain is taxable u/s 45 in the previous year in which long term specified assed is transferred.4)  If Loan is taken on the basis of security of long term specified assets, it is deemed that asset is converted into money and taxable according to point 3).Capital Gain
54EEAny AssesseeLTCGAny AssetLong Term specified asset (it is not yet notified therefore making this section irrelevant)1)  Time Limit for Investment – 6 months from the date of transfer.2)  Maximum Investment – 50 Lakhs for the FY in which asset transferred and subsequent FY3)  Lock in period for the investment – 3 years from the date of acquisition otherwise exempted Capital Gain is taxable u/s 45 in the previous year in which long term specified assed is transferred.4)  If Loan is taken on the basis of security of long term specified assets, it is deemed that asset is converted into money and taxable according to point 3).Capital Gain
54FIndividual or HUFLTCGAny asset other than Residential House Property1 Residential House Property1)  Time Limit for the procurement – purchased within 1 year before or 2 years after the date of transfer, or constructed within 3 years from the date of Transfer.2)  Exemption is not available if assessee, apart from new asseti.   Holds more than 1 Residential House on the date of Transfer.ii.  Purchases any Residential house within 2 years of date of Transfer.iii. Constructs any House within 3 years of date of transfer.3)  If assessee violates the conditions mentioned in 2) ii. and 2) iii, then exempted capital gain shall be taxable u/s 45 in the year of violation.4)  Lock in period for holding new asset – 3 years from the date of acquisition or construction.Net Sales Consideration
54GAny AssesseeLTCGLand, Building, Plant or Machinery or rights for land or building used for the business of industrial undertaking in Urban Area.Purchased Land, building plant or machinery or constructed building or acquired rights for land or building1)  Reason for transfer – Shifting of an undertaking to area other than urban area.2)  Time Limit – 1 year before or 3 years after the date of transfer.Capital Gain
54GAAny AssesseeLTCGLand, Building, Plant or Machinery or rights for land or building used for the business of industrial undertaking in Urban Area.Purchased Land, building plant or machinery or constructed building or acquired rights for land or building1)  Reason for transfer – Shifting of an undertaking to SEZ only.2)  Time Limit – 1 year before or 3 years after the date of transfer.Capital Gain
  • Note for section 54, 54B, 54D, 54F, 54G and 54GA.
  • If the amount of Capital Gain or Net Sales Consideration is not invested or utilized in procuring new capital asset within the due date of furnishing return u/s 139(1), then assessee shall deposit the amount in Capital Gain deposit account scheme with the specified banks or institution within due date for furnishing return u/s 139(1) in order to claim the exemption.
  • If the amounts so deposited in the Capital gain deposit account with the banks or institution are not utilized or procured within the time specified in their respective section then the unutilized amount would be treated as capital gain on the proportionate basis based on capital gain exemption claimed earlier and shall be chargeable to tax u/s 45 in the previous year in which time prescribed in their respective sections expires.

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