EXEMPTION OF LONG TERM CAPITAL GAINS ON TRANSFER OF RESIDENTIAL PROPERTY U/S SECTION 54GB

Section 54GB has been inserted to exempt long term capital gains on sale of a residential property(house or plot of land) owned by an individual or HUF if the sale consideration is used for subscription in equity shares of an eligible company being a newly incorporated SME company engaged in the manufacturing sector,which is utilized by the company for the purchase of new Plant & Machinery.

For the purpose of this section,

Eligible company means a company that should be:

• Incorporated in the financial year in which the capital gain arises or in the following year on or before the due date of filling of return of income by the individual or HUF;

•      Engaged in the business of manufacture of an article or thing;

•      A company in which the individual or HUF holds more than 50% of the sharre capital or 50% of the voting rights,after the subscription in shares by the  individual or HUF; and

•     A company which qualifies to be a Small or Medium Enterprise(SME) under the Micro,Small and Medium Enterprise Development Act,2006 i.e. investment in the equipment is more than Rs.25 lakhs but less than Rs.10 crore.

The following conditions should be satisfied for claim of exemption:

1. The Amount of net consideration should be used by the individual or HUF before the due date of furnishing return of income for the subscription in equity shares of the eligible company.
2. The amount of subscription should be utilised for the purchase of new Plant & Machinery within a period of 1 year from the date of subscription in the equity shares.
3. If the amount of net consideration is not utilized by the company for the purchase of Plant & Machinery before the due date of filling of return by the individual or HUF, the unutilised amount should be deposited in an account with any specified bank or institution before such date of filling of return of income.
4. The said amount should be utilised in accordance with any scheme which may be notified by the Central Government in the Official Gazette.

  

    The amount, if any, already utilised by the company for the purchase of new Plant & machinery and the amount deposited as mentioned above will be deemed to be the cost of new plant & machinery for the purpose of computation of capital gains.

    New Asset means new plant & machinery but does not include-

•   Any plant or machinery which before its installation was used either within or outside india by any other person;
•   Any machinery or plant installed in any office premises or any residential accommodation,including accommodation in the nature of guest house;
•   Any office appliances including computers or computer software;
•   Any vehicle; or
•   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

    The exemption under this section would not be available in respect of transfer of residential property made after 31^st March,2017

    

    If the equity shares acquired by the individual or HUF or the new plant & machinery acquired by the company are sold or transferred within a period of 5 years from the date of acquisition,the amount of capital gains exempt earlier shall be deemed to be the income of the individual or HUF chargeable under the head “ Capital Gains” of the previous year in which such equity shares or such new plant & machinery are sold or otherwise transferred.

This Article has been Shared by Student of ICAI Palak Aggarwal. She Can be reached at aggarwal.palak2809@gmail.com

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