Capital gain exemption: Section 54 GB

Asset to be transferred: Residential property (land or house).

Usage of derived capital gain to claim exemption: Subscription in equity shares of eligible company.

• Individuals/ HUF.

• The provisions of this section shall not apply to any transfer of residential property made after the 31st March, 2017.
• However, in case of an investment in eligible start-up, the provisions of this section shall apply to any transfer of residential property upto 31st March, 2022.

• The residential property transferred shall be long-term capital asset.
• The assesse should utilise the net sale consideration from transfer for subscription in the equity shares of an eligible company ^*(1) before the due date of furnishing of return of income.
• The above mentioned company shall within 1 year from the date of subscription in equity shares by the company, utilise the amount for the purchase of new asset.^*(2)

• If the entire net sale consideration is invested, total capital gain is exempt from tax.
• If the net sale consideration is greater than the cost of the new asset,

Capital Gain Exempted =

• The net consideration received by the company for issue of shares to the assessee should be utilised by the company for the purchase of new asset before filing return of Income by assessee.
• The unutilised net consideration can be claimed as exemption by depositing the same in the capital gain deposit A/c scheme with any nationalised bank before the due date of filing return of income by the assessee.
• If the amount in the capital gain deposit A/c scheme remains unutilised for a period of 1 year from the date of the subscription in equity shares by the assessee, the unutilised amount will be taxable under the head “capital gains” in the PY in which the one year from the date of subscription in equity shares by the assessee expires.

• The equity shares of the company or the new asset acquired should not be transferred for a period of 5 years (3 years in case of computer or computer software acquired by an eligible startup) from the date of their acquisition.
• If transferred within 5 (or) 3 years as the case maybe, the capital gain exempted earlier would be taxable under the head “capital gain” in the PY in which such transfer took place.

Notes:

*(1) Eligible Company:

Eligible company means a company which satisfies the following conditions,

• A company incorporated in India between the previous year in which the capital gain arises to the due date of furnishing of return of income
• It is engaged in the business of manufacture of an article or a thing or in an eligible business *(3)
• It is a company in which the assessee has more than 25% share capital or more than 25% voting rights after the subscription in shares by the assessee
• It is an eligible start-up *(4) or it is a small or medium company as per the MSME Act, 2006.

*(2) New Asset:

New asset means new plant and machinery but does not include,

• Second hand plant and machinery.
• Plant and machinery installed in any office premises/ residence/ guest-house.
• Office appliances including computers or computer software
• Any Vehicle
• Plant and machinery for which the whole cost is allowed as deduction under any other head of PGBP.

*(3) Eligible Business

Eligible business” means a business carried out by an eligible start-up^*(4) engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;

*(4) Eligible Start-Up

A company or a LLP which satisfied the following conditions and is engaged in above mentioned eligible business

• It is incorporated on or after the 1st April, 2016 but before 1st April, 2022
• Total turnover does not exceed 100 crore in the previous year
• It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified by the Central Government.