Section 54D of Income Tax Act 1961 – Decoded!

Section 54D of Income Tax Act 1961 provides for tax exemption on capital gains that arises from compulsory acquisition, under any law of capital asset, of land or building or any right in land or building (original asset) belonging to an industrial undertaking. Following conditions should be satisfied to claim exemption under section 54D:

1. The land or building that is acquired should belong to an industrial undertaking.

2. The assessee (industrial undertaking) should have used the land or building for the purpose of its business for minimum 2 years immediately preceding the date on which the transfer took place.

3. The assessee should purchase another land or building or any right in any other land or building (new asset) within 3 years from the date of transfer of original asset, for the purpose of shifting or re-establishing the said industrial undertaking. section-54d-of-income-tax-act-1961

Exemption Amount under Section 54D of Income Tax Act 1961

Under Section 54D of Income Tax Act, following provisions shall be applicable to arrive at capital gain exemption amount:

  • If the amount of capital gain is less than or equal to cost of new asset, then entire Capital Gain Amount is exempted, and
  • If the amount of capital gain is greater than cost of new asset, then the assessee can claim exemption upto the cost of new asset.

Capital Gains Account Scheme

Under section 54D, the assessee can also avail benefit of Capital Gain Account Scheme (CGAS). If the assessee is not able to purchase new asset in the same financial year in which the original asset is sold, he can deposit the capital gain amount in a special account of Capital Gains Account Scheme available at many government banks. Amount deposited in a CGAS account is not taxable upto 3 years from the date of transfer of original asset.

For more details, check out this guide on Capital Gains Account Scheme.

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