Section 54D – Exemption of Capital gain on compulsory acquisition of lands and buildings in certain cases
Nature of Transfer covered under Section 54D
This section deals with the capital gain which arises when any land or building or any right in land or building, forming part of an industrial undertaking, stands transferred by way of compulsory acquisition under any law.
Who can claim the benefit of the exemption?
The benefit of section 54D is available to all the assessee.
What should be the period of holding or usage of the property sold?
The property sold should be a held and used by the assessee for the purposes of the business for 2 years immediately preceding the date on which transfer took place.
What is the criterion for and amount of tax that can be exempted?
The criterion for exemption is reinvestment of capital gains from the sale proceeds of the land or building or any right in land or building, forming part of an industrial undertaking, stands transferred by way of compulsory acquisition under any law.
The amount of exemption shall be as follows:
|Scenarios||Amount of Exemption||Cost of New Asset if sold within Lock-in Period*|
|Capital Gains < Amount Reinvested||Full amount of Capital Gains shall be exempt||Cost shall be reduced by the amount of capital gains for which exemption was claimed earlier.|
|Capital Gains > Amount Reinvested||Difference between Capital Gains and amount reinvested shall be taxable under head Income from Capital Gains||Cost of the new asset shall be NIL|
*Lock-in period for New Property Purchased or constructed: The said property cannot be transferred for a period of 3 years.
What are the conditions for claiming this exemption?
The exemption will be available only when;
- the assessee has within a period of three years after that date (i.e., date of transfer) purchased any other land or building or any right in any other land or building or
- constructed any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking
Concept of Capital Gains Account Scheme
In case you could not utilize the amount as per prescribed conditions up to the date of filing the Income tax return under section 139 (1). You still have the option to get away with the capital gains by depositing the amount of capital gains in a specified account with the banks named as ‘Capital Gains Account Scheme’.
The purpose of keeping the money in this account is to ensure that double benefit should not be given to any person i.e. exemption as well as liberty to use money as per choice. The amount deposited in this account can only be used for the prescribed purpose. This money is to be utilized within a period of 3 years from the date of transfer of original asset. In case, there is any unutilized amount is there, the same shall be taxable as Capital Gains in the previous Year when the time of 3 years expires.
Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in what so ever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.