Capital Gains Deduction 54G is available, if you have capital gains arising from the transfer of,
any rights in building or land,
used for your business in an urban area, and if the transfer is in consequence of, the shifting of such business to any area other than an urban area. To claim your deduction u/s 54G refer the condition given below.
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Within a period of one year before or three years after the date on which the transfer took place,
You should have purchased new machinery or plant, or
You should have acquired building or land, or
You should have constructed building, or
You should have incurred any expenses specified by the Central Government from time to time,
exclusively for the purpose of business shifted from an Urban area to other area.
54G is applicable only for transfer of capital assets (plant, machinery, building, land etc) used by you for the purposes of your business or Industry.
54G is not applicable for your other capital assets like residential properties, shares etc.,
The transfer of your Business/Industry should be from an Urban area to Non-Urban area.
You can't claim deduction u/s 54G, if you transfer your Business/Industry from an Urban area to another Urban area, or from a Non-Urban area to an Urban area.
Capital Gains are fully exempt, if the costs of the new assets are MORE than the capital gains.
If the amount of the capital gain is greater than the cost and expenses incurred for shifting your business from an Urban area to Non-Urban area, then you have to pay tax on the amount of difference between the capital gain and the cost of the new asset.
If you, transfer the new assets within a period of three years of its being purchased, acquired, constructed or transferred, then the capital gains already exempt shall be deemed to capital gains in the previous year in which such transfer took place.
Let us continue with an example.
Let's assume, you transferred some of your assets, Land, Building, Plants & Machinery used for your business in consequence of shifting of such business to non-urban area from an urban area, for
80,00,000 on 30.01.2012. And the assets were purchased by you on 01.01.2005 for 10,00,000.
Then the assets become a long term capital asset as the period of holding would be more than 36 months (01.01.2005 to 30.01.2012). And its transfer gives rise to long term capital gains.
Note: Capital Gains Deduction 54G is applicable for both Short Term (STCG) & Long Term Capital (LTCG) Gains. I have chosen LTCG here.
In this case of LTCG you have options use the capital gains,
To purchase new machinery or plant, or
to acquire building or land, or
to construct building, or
for any expenses specified by the Central Government from time to time,
exclusively for the purpose of business shifted from an Urban area.
You should have done the purchase/acquisition/construction, one year before or three years after the date on which the transfer of your business took place i.e. from 30.01.2011 to 30.01.2015.
Let's now calculate the LTCG on transfer of your business assets using the LTCG Calculator ».
Let's consider 31st July 2012 as the due date for filing your Income tax return, and that you have invested in purchase of land and construction of building for your business in a non-urban area,
25,00,000/- up to that date.
Now to claim Capital Gains Deduction for entire LTCG u/s 54G, you should deposit 38,64,583/- (63,64,583 - 25,00,000) in a Capital Gains Deposit Account on or before 31st July, 2012.
If, out of this amount, you utilise only 30,00,000/- for purchase of new plant and machinery for your business by 01.01.2015, the remaining amount 8,64,583/- (38,64,583 - 30,00,000) would be taxed as Capital Gains for the assessment year 2015-16.