Long term capital gain arising from capital asset transferred:

Capital gain exemption

Other points
Residential House As per Sec. 54, Individual/HUF can claim exemption if  the amount of capital gain is invested

  • To purchase a residential house within 1 year before or 2 years after the date of transfer of the original residential house.
  • To construct one residential house within 3 years from the date of transfer of the original house

* Amount of exemption shall be equal to the amount invested or capital gain, whichever is lower.
  • The capital gain  account scheme shall be applicable.
  • Original house must be held by assessee for the period of 3 years .
Any capital asset  As per Sec. 54EC, any person can claim exemption if assessee has invested the amount of capital gain in bonds issued by

  • National Highway Authority Of India
  • Rural Electrification Corporation Limited

within   6 months from the date of transfer of original asset.

 An assessee is allowed to invest maximum Rs 50,00,000 in one financial year.
Residential House or Plot
As per section 54 GB, Individual/HUF can claim exemption if the following conditions are complied:

  • Assesee has invested the amount of capital gain in equity shares of small & medium enterprise in the same year or next year, but up to the late date of filing return of income.
  • Such enterprise must be incorporated in the  same year or up to  the last date of filing return of income.
  • The assessee should hold more than 50% of equity shares of such enterprise.
  • The amount invested by the assessee in the form of equity shares must be used to purchase **new Plant & Machinery for factory use.
Small and medium enterprise means an enterprise where investment in Plant & Machinery is more than Rs 25, 00,000 but less than Rs. 10 crores.

**Plant & Machinery should be new, It should not be 2nd hand Plant & Machinery
Any capital asset  except residential house As per Sec 54F, Assessee must comply with all the conditions stated as per Sec  54 under capital gain exemption.

Please note that investment must be made in residential house property.

 Assessee should not have more than 1 house in his name on the date of transfer besides the house which is being purchased.
Shifting of the industrial undertaking from urban area to any other area As per Sec. 54G, exemption is allowed to all if

  • Assessee has earned long term capital gain on the transfer of
  •  Land or building
  •  Plant and machinery

which belong to an industrial undertaking shifted from urban area to any other area.

  • The assessee must invest the amount in  land/building or Plant and Machinery for the purpose of industrial undertakings.

The amount must be invested within 1 year before or 3 years after the date of transfer of the original asset.
  • No exemption is allowed if the amount is invested in furniture & fixture.
  • The exemption shall be allowed for  shifting expenses.
6.Agriculture land in the urban area As  per Sec. 54 B, exemption is allowed to individual/HUF if

  • The assessee has earned capital gain (short term & long term) on the transfer of agricultural land which is used by assessee or by his parents for a period of at least 2 years from the date of transfer.
  • Land must be used for the purpose of agriculture.

The exemption is allowed if the assessee has purchased one or more agriculture land within a period of 2 years after the date of transfer of the  original land and it can be purchased in rural area or urban area.
  • The exemption is allowed equal to amount invested.
  • The capital gain account scheme shall be applicable.</li >

Important points to remember

  • As per Sec. 54, 54B & 54F, assessee can avail the exemption if he has invested the amount in specified capital asset  up to last date of filing return of income otherwise amount should be deposited in Capital Gain Account Scheme by opening an account with nationalized  bank or post office.
  • The amount invested in the  capital account scheme should be withdrawn for making investment within the specified time period, otherwise the  unutilized amount shall be considered long term capital gain of the year in which time period has expired.
  • As per Sec. 54,54EC,54F, 54G & 54B, the capital asset  purchased or constructed must not be transferred for a period of at least  3 years otherwise exemption allowed earlier shall be withdrawn.
  • If assessee has  invested the amount of capital gain in  the new house from his bank account  and title deed contains the name of spouse, exemption from long term capital gain will be allowed as decided by the case of  Ravinder Kumar Arora Vs Commissioner of Income Tax.
  • There is no compulsion on assessee to invest the amount received from sale of house property, he can use other cash & cash equivalent held by him to invest in new house property.