Amended and updated notes on section 54GB of Income Tax Act 1961 as amended by the Finance Act 2021 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to capital gain on transfer of residential property not to be charged in certain cases.
Chapter IV (Sections 14 to 59) of the Income Tax Act 1961 deals with the provisions related to computation of total income. Section 54GB of IT Act 1961-2021 provides for capital gain on transfer of residential property not to be charged in certain cases.
Recently, we have discussed in detail section 54GA (exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone) of IT Act 1961. Today, we learn the provisions of section 54GB of Income-tax Act 1961. The amended provision of section 54GB is effective for financial year 2021-22 relevant to the assessment year 2022-23.
In this article, you will learn detail of the provisions of section 54GB of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-54GB: Capital gain on transfer of residential property not to be charged in certain cases
Section 54GB(1) of Income Tax Act
(i) the capital gain arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee (herein referred to as the assessee); and
(ii) the assessee, before the due date of furnishing of return of income under sub-section (1) of section 139, utilises the net consideration for subscription in the equity shares of an eligible company (herein-referred to as the company); and
(iii) the company has, within one year from the date of subscription in equity shares by the assessee, utilised this amount for purchase of new asset,
then, instead of the capital gain being charged to income-tax as the income of the previous year in which the transfer takes place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
- (a) if the amount of the net consideration is greater than the cost of the new asset, then, so much of the capital gain as it bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45 as the income of the previous year; or
- (b) if the amount of the net consideration is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 as the income of the previous year.
Section 54GB(2) of Income Tax Act
The amount of the net consideration, which has been received by the company for issue of shares to the assessee, to the extent it is not utilised by the company for the purchase of the new asset before the due date of furnishing of the return of income by the assessee under section 139, shall be deposited by the company, before the said due date in an account in any such bank or institution as may be specified and shall be utilised in accordance with any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and the return furnished by the assessee shall be accompanied by proof of such deposit having been made.
Section 54GB(3) of Income Tax Act
For the purposes of sub-section (1), the amount, if any, already utilised by the company for the purchase of the new asset together with the amount deposited under sub-section (2) shall be deemed to be the cost of the new asset:
Provided that if the amount so deposited is not utilised, wholly or partly, for the purchase of the new asset within the period specified in sub-section (1), then,—
(i) the amount by which—
- (a) the amount of capital gain arising from the transfer of the residential property not charged under section 45 on the basis of the cost of the new asset as provided in sub-section (1), exceeds—
- (b) the amount that would not have been so charged had the amount actually utilised for the purchase of the new asset within the period specified in sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the assessee for the previous year in which the period of one year from the date of the subscription in equity shares by the assessee expires; and
(ii) the company shall be entitled to withdraw such amount in accordance with the scheme.
Section 54GB(4) of Income Tax Act
If the equity shares of the company or the new asset acquired by the company are sold or otherwise transferred within a period of five years from the date of their acquisition, the amount of capital gain arising from the transfer of the residential property not charged under section 45 as provided in sub-section (1) shall be deemed to be the income of the assessee chargeable under the head “Capital gains” of the previous year in which such equity shares or such new asset are sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of shares or of the new asset, in the hands of the assessee or the company, as the case may be:
Provided that in case of a new asset, being computer or computer software, acquired by an eligible start-up referred to in the proviso to clause (d) of sub-section (6), the provisions of this sub-section shall have effect as if for the words “five years”, the words “three years” had been substituted.
Section 54GB(5) of Income Tax Act
The provisions of this section shall not apply to any transfer of residential property made after the 31st day of March, 2017 :
Provided that in case of an investment in eligible start-up, the provisions of this sub-section shall have the effect as if for the figures, letters and words “31st day of March, 2017”, the figures, letters and words “31st day of March, 2022” had been substituted.
[Proviso of sub-section (5) of section 54GB has been amended(substituted) w.e.f. 1st April, 2021 by the Finance Act 2021]
Section 54GB(6) of Income Tax Act
For the purposes of this section,—
(a) “eligible assessee” means an individual or a Hindu undivided family;
(b) “eligible company” means a company which fulfils the following conditions, namely:—
- (i) it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to the assessment year in which the capital gain arises to the due date of furnishing of return of income under sub-section (1) of section 139 by the assessee;
- (ii) it is engaged in the business of manufacture of an article or a thing or in an eligible business;
- (iii) it is a company in which the assessee has more than twenty-five per cent share capital or more than twenty-five per cent voting rights after the subscription in shares by the assessee; and
- (iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 (27 of 2006) or is an eligible start-up;
(ba) “eligible start-up” and “eligible business” shall have the meanings respectively assigned to them in Explanation below sub-section (4) of section 80-IAC;
(c) “net consideration” shall have the meaning assigned to it in the Explanation to section 54F;
(d) “new asset” means new plant and machinery but does not include—
- (i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;
- (ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;
- (iii) any office appliances including computers or computer software;
- (iv) any vehicle; or
- (v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year:
Provided that in the case of an eligible start-up, being a technology driven start-up so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the Official Gazette, the new asset shall include computers or computer software.