Section 54GB: Capital Gains on Transfer of Residential Property not to be charged in Certain Cases
The Ministry of Commerce and Industry has announced its National Manufacturing Policy in 2011. The goal of this policy is to promote investment in the Small and Medium Enterprises (SME) in the manufacturing sector.
To help achieve the above purpose, the Government has proposed to provide an exemption from long term capital gain to an individual (resident as well as non-resident) or an HUF on sale of a residential house property (a house or a plot of land in India or Outside India). The exemption is available via a two-step process:
(a) First the net sale consideration has to be utilized for subscription of equity shares (no preference shares) in a newly set-up SME Company in the manufacturing sector in which the tax payer would have majority control or majority share capital.
(b) This SME has then, within one year from the date of subscription in equity shares, utilizes the amount for purchase of new plant and machinery or in case of non-utilization deposit the money in Capital Gains Account Scheme (CGAS) before due date of filing of return under section 139.
Amount of Exemption:
The exemption will be available in the proportion of net sale consideration to the amount invested in the purchase of new plant and machinery by that SME.
1. If net consideration exceeds the Cost of New Asset, then
Long Term Capital Gain X (Cost of New Asset/Net Consideration)
shall be exempt under section 54GB.
2.If net consideration is less than the cost of new asset, then the entire Long term Capital Gain shall be exempt under section 54GB.
Lock in Period
Assessee is required to hold the equity shares of SME for a period of 5 years, if he fails to do that than the amount of capital gain exempted earlier under section 54GB shall be deemed to be the income of the assessee chargeable under the head “Capital Gains” and also the gains derived from selling of shares shall be assessed in the hands of assessee only.
The relief would be available in case the transfer of residential property is made on or before 31st March, 2017.
For the purpose of this section:
1. Eligible Assessee means an individual (resident or non-resident) or a Hindu Undivided Family.
2. Eligible Business means a company which fulfills the following conditions namely;
- it is a company incorporated in India during the period from 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.
- it is engaged in the business of manufacture of an article or a thing
- it is a company in which the assessee has more than fifty percent share capital or more than fifty percent voting rights after the subscription in shares by the assessee; and
- it is a company which qualifies to be a small or medium enterprises under the Micro, Small and Medium Enterprises Act, 2006 (27 of 2006).
3. Net Consideration shall have the same meaning as in section 54F i.e. sale consideration less any expense on transfer.
4. New Asset means new plant and machinery but does not include:
- any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person
- any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house
- any office appliances including computers or computer softwares
- any vehicle or
- 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;.