Capital Gain On Transfer Of Residential Property Not To Be Charged In Certain Cases – Sec. 54GB

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Section 54GB: CAPITAL GAIN ON TRANSFER OF RESIDENTIAL PROPERTY NOT TO BE CHARGED IN CERTAIN CASES

AVAILABLE TOIndividual, HUF
WHICH CAPITAL GAINS COVEREDLTCG arising from transfer of a residential property (a house or a plot of land)  owned by the assessee (House or plot of land may be in India or outside India)
CONDITIONS FOR CLAIMING DEDUCTIONThe assessee has before the due date of furnishing the return of income under section 139(1) utilized the net consideration for subscription in EQUITY shares of an eligible company (Preference share cannot be subscribed), and the company has within 1 year from the date of subscription in equity shares, utilised the amount for purchase of new asset.

The unutilised amount of net consideration shall be deposited by the company before the due date in such bank or institution as as may be specified by Central Govt.

MEANING OF ELIGIBLE COMPANYEligible company means a company which fulfills all the following conditions:

  1. It should be incorporated in India during the period commencing from 1st April of the previous year in which the capital gains arises and ending on the due date of furnishing of return u/s 139(1) by the assessee.
  2. It is engaged in business of manufacture of an article or thing or in an eligible business (Inserted by FA, 2016, w.e.f. 1-4-2017)
  3. It is a company in which assessee has more than 50% share capital or more than 50% voting rights after subscription in shares by the assessee
  4. The company which qualifies to be a small or medium enterprise under the Micro, Small or medium Enterprise Act, 2006 or is an eligible start-up (Inserted by FA, 2016, w.e.f. 1-4-2017)
AMOUNT OF CAPITAL GAIN EXEMPT
  1. If net consideration > Cost of new asset then

Long term capital gain x (Cost of new asset/ Net consideration)

Shall be exempt under section 54GB

  1. If net consideration ≤ Cost of new asset then, entire long term capital gain shall be exempt.
MEANING OF NEW ASSET‘new asset’ means new plant and machinery but does not include the following:

  1. Any plant or machinery which is used in India or outside India by any person before its installation by the eligible company
  2. Any plant or machinery which is installed in office premises/ residential accommodation/ guest house.
  3. Any office appliance
  4. Computers
  5. Computer software
  6. Any vehicle
  7. Any plant or machinery which is allowed 100% deduction in any previous year.

Provided that in the case of an eligible start-up, being a technology driven start-up so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette, the new asset shall include computers or computer software (Inserted by FA, 2016, w.e.f. 1-4-2017)

LOCK IN PERIOD OF 5 YEARS FOR EQUITY SHARES AND NEW ASSET
  • If the equity shares of the company
  • Or the new asset acquired by the company
  • Are sold or otherwise transferred
  • Within a period of 5 years from the date of their acquisition,
  • The amount of capital gain from transfer of residential property not charged u/s 45
  • Shall be deemed to be the income of the assessee
  • Chargeable under the head “ Capital gains”
  • Of the previous year in which such equity shares or such new asset are sold or otherwise transferred.
  • In addition to taxability of gains, arising on account of transfer of shares or of the new asset, in the hands of the assessee or the company, a the case may be.
  • The provisions of this section shall not apply to any transfer of residential property made after 31.3.2017

Provided that in case of a investment in eligible start-up, the provisions of this section shall have the effect till 31.3.2019 (Inserted by FA, 2016, w.e.f. 1-4-2017)

‘eligible start-up’ and ‘eligible business’ shall have the meaning assigned to them as per explanation to section 80-IAC(4) (Inserted by FA, 2016, w.e.f. 1-4-2017)

 

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