Capital Gains Deductions Section 54D

Transfer by Compulsory Acquisition and investment in a New Property

Capital Gains Deductions are available, for Compulsory acquisition under any law of

  • Land or building or

  • any right in land or building,

forming part of an industrial undertaking used by you for business for at least two years before the date of Compulsory acquisition.

On this page:

How to claim the CG Deductions u/s 54D?

Conditions to claim the deduction,

  • The Land or Building should have been forming part of an industrial undertaking, and

  • it should have been used by you for your business for at least two years before the date of Compulsory acquisition, and

  • you should acquire any other land or building or any right in any other land or building, or

  • construct any other building for shifting or re-establishing the industrial undertaking within three years from the date of transfer.

Procedure to claim this Capital Gains Deductions,

  • after taking into consideration for the amount that you already invested for the purpose of purchase or construction of the Land or Building up to the due date of filing of return of income,

  • should deposit in bank the remaining amount which you intend to use for the purpose of purchase or construction of the Land or Building in a Capital Gains Deposit Account on or before the due date for filing of the return.

You should have proof of investment for the purchase or construction of the Land or Building and proof of making deposit into the capital gains deposit account, to provide whenever required by the Assessing Officer.

Time Limit to Utilise the Money

The amount which is deposited in the Capital Gains Deposit Account has to be utilised by you, for the purpose of purchase or construction of the Land or Building within three years from the date of transfer.

What happens if I don't utilise the Money with in the specified period?

If you fail to utilise this amount either wholly or partly for purchase or construction of the Land or Building within the period, the amount remaining unutilised would be taxed as Capital Gains in the year in which the above mentioned period of three years is over.

Capital Gains Deductions u/s 54D Example

Let us continue with an example.

Let's assume, your Building forming part of your industrial undertaking was taken by Compulsory acquisition on 01.01.2012, for Rs 40,00,000. And the building was purchased by you on 01.01.2007 for Rs 10,00,000.

Then the Building becomes a long term capital asset as the period of holding would be more than 36 months (01.01.2007 to 01.01.2012). And its acquisition gives rise to long term capital gains.

Note: Deduction u/s 54D is applicable for both Short Term (STCG) & Long Term Capital (LTCG) Gains. I have chosen LTCG here.

In this case of Compulsory acquisition LTCG you have options to,

  1. acquire any other land or building, or

  2. acquire any right in any other land or building or

  3. construct any other building,

for shifting or re-establishing the industrial undertaking within three years from the date of acquisition (i.e.) 01.01.2015.

Let's now calculate the LTCG on Compulsory acquisition of your Building using the LTCG Calculator ».

LTCG-Agri

Calculated Compulsory Acquisition LTCG

ltcg-deduction

Let's Consider 31st July 2012 as the due date for filing your Income tax return, and that you have invested in a new Land or building Rs20,00,000 up to that date.

Now to claim deduction for entire LTCG, you should deposit Rs 4,87,476/- (Rs24,87,476 - 20,00,000) in a Capital Gains Deposit Account on or before 31st July, 2012.

If, out of this amount, you utilise only Rs 1,00,000 for purchase of new Land for your business by 01.01.2015, the remaining amount Rs 3,87,476 (4,87,476 - 1,00,000) would be taxed as Capital Gains for the assessment year 2015-16.

Withdrawal of Exemption

If the new asset is transferred within three years from the date of acquisition, then while calculating the capital gains for that transfer, the cost of acquisition of new asset shall be reduced by the capital gains already exempt.

Top of Capital Gains Deductions

Related Topics

54 »

54B »

54EC »

54F »

54G »

Top

Top

Top

New! Comments

Have your say about what you just read! Do you want us to add any other information related to this topic? Let us know.

submit to reddit

Protected by Copyscape Duplicate Content Detection Tool

Free Newsletter

Our Monthly newsletter ‘Online Tax Consultant’ is the ideal way to make sure you miss nothing in the world of Taxation in India.

Email

Name

Then

Income Tax Questions
Have Questions on Tax?

Salary Income Tax
Salary Taxation

House Property Tax
House Property

Capital Gains Income Tax
Capital Gains

Business Income Tax
Business Tax

Corporate Tax
Corporate Tax

Other Sources Income Tax
Other Sources