FAQ’s on Section 54D (capital gain exemption)

1. What is section 54D of Income-tax Act?

Section 54D of Income-tax Act provides exemption in respect of capital gain which arises during the compulsory acquisition of land or building forming part of an industrial undertaking.

  • Yes, Exemption can be availed in respect of TWO residential house property purchased or constructed in India when the capital gain is less than 2 crores.
  • However this is available only once in a life time.

2. Can I claim exemption under section 54D in respect of short term capital gain?

Yes, exemption under section 54D can be claimed on both short term and long term capital gain subject to conditions provided in this section.

3. In what type of asset should I invest in order to claim exemption under section 54D?

To claim exemption under this section the assessee should invest in Land or building forming part of an industrial undertaking.

4. When should I purchase/construct the land or building in order to claim exemption under section 54D?

The land or building purchased/constructed within 3 years from the date of compulsory acquisition.

5. Can I claim exemption under section 54D if I have not used the land/building for industrial purpose?

No, exemption can be claimed only if the land/building has been used for industrial purpose by the Assessee for atleast two years immediately preceding the date of transfer.

6. When can I claim exemption under section 54D?

Exemption under section 54D is available only when a capital gain arising from transfer of land or building forming part of an industrial undertaking is invested in purchase of any other land or building forming part of an industrial undertaking.

7. Who can claim exemption under section 54D?

Exemption under section 54D is available to all assesses.

8. What is the maximum amount of exemption under section 54D?

Amount invested in purchase of new asset or capital gain whichever is less.

9. What is capital gain account scheme?

Unutilized capital gain can be claimed as exemption by depositing the same in the capital gain deposit A/c scheme with any nationalized bank before the due date of filing return of income.

10. What if the amount in capital gain account scheme is not utilized within a specified period?

If the amount in the capital gain deposit A/c scheme remains unutilized for a period of three years, the unutilized amount will be taxable as LTCG in the PY in which the 3 years expires.

11. What happens if the amount invested in capital gain account scheme is not utilised within the specified period?

The amount not utilized shall be considered as capital gain and treated as income under section 45 in the PY in which the period of three years from the date of the transfer expires.

12. Can I claim exemption under section 54D if the new asset is purchased after filing of return of income?

  • Yes, but the unutilized capital gain should be deposited in the capital gain deposit A/c scheme with any nationalized bank before the due date of filing return of income.
  • If the capital gain is not deposited into the capital gain deposit A/c scheme, then the assessee cannot claim exemption under this section. (refer FAQ no 9,10)

13. Will the exemption be withdrawn if the new land or building is transferred within a period of 3 years?

Yes. If transferred, the cost of new asset shall be reduced by the amount of capital gain exempted earlier while calculating capital gain in the year of transfer.

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