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Presently I am a salaried assessee working in a private company & will be resigning from the company. I will be getting around Rs. 27 Lacs as retirement benefit which I intend to utilize for setting up of a new business. I am also planning to sell an agricultural land and plot in the current financial year & wish to utilize the amount for setting up of my own business. I had already purchased an Industrial plot in the year 2008 at Butibori, MIDC. In the recent budget, I have heard about the new scheme which makes profit arising on sale of property, tax free if it invested in setting up of a business. Whether I can save my tax on sale of plot & agricultural land if I invest it in the new business? Please advice. [firstname.lastname@example.org]
A new section 54GB has been incorporated in the Income Tax Act-1961 which provides exemption in respect of long term capital gain arising from transfer of residential house property from the A.Y. 2013-14.
For the mass benefit, we are elaborating in detail the provision of section 54GB which is are applicable from the assessment year 2013-14, as under:
- Exemption is available to an individual & HUF.
- Exemption is available if the assessee transfers a residential property (a house or a plot of land). The residential house property should be a long term capital assets i.e., should have a holding period of more than 36 months.
[In your case, it may be noted that exemption is not available if the capital gain arises from transfer of an agricultural land or from transfer of plot which is not a residential plot]
- The transfer should take place in between 01.04.2012 to 31.03.2017.
- For exemption, the assessee will have to utilize the net sale considerations for subscription in equity shares of an “eligible company” before the due date of furnishing of return of income under section 139(1),
- The “eligible company” should utilize this amount for the purchase of a “New Asset” within one year from the date of subscription in equity shares. If, however the company does not utilize this amount for the purchase of a “New asset” before the due date of furnishing of return of income by assessee (i.e., transferor of residential property), it will be required to be deposited by the company in Capital Gains Deposit Account Scheme(CGDAS). In such a case, exemption would be available on the basis of amount deposited in the CGDAS.
- Amount of exemption is as follows (It cannot, however, exceed the amount of capital gain): = Investment in “new asset” by the eligible company/Net sale considerations*Capital gain
- Net sale consideration is sale considerations minus expenditure on transfer incurred by the transferor.
Meaning of “eligible company” as mentioned above:
It means a company which satisfies the following conditions-
- It is incorporate on or after April 1st of the financial year in which residential property is transfer but on or before the due date of submission of return of income under section 139(1) by the assessee (i.e., transferor of residential property).
- It is engage in the business of manufacture of any articles or thing.
- The assessee (i.e., transferor of residential property) should have more than 50% share capital (or voting right) after subscription in the shares of the company.
- The company qualifies to be a SME (i.e., small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006)(i.e., where the investment in plant and machinery is more than Rs. 25 Lacs but not more than Rs. 10 Crore).
Meaning of “New Asset”:
It means new plant and machinery but does not include the following-
- Any plant or machinery which is use. In India or outside India by any person before its installations by the eligible company.
- Any plant or machinery which is install in office premises/residential accommodation/guest house.
- Any office appliance.
- Computers software
- Any vehicle
- Any plant or machinery which is allow 100 per cent deduction (by depreciation or otherwise) in any ‘previous year.
Words of Caution:
In the following cases, exemption will be taken back and the amount of exemption (or proportionate exemption) given earlier under section 54GB will become a long term capital gain of the assessee (i.e., transferor of residential property). It shall be taxable in the year in which the assessee or the eligible company commits the following defaults:
- If the equity shares in the eligible company are sale or otherwise transfer by the assessee. Within 5 years from the date of acquisition.
- If the “New Asset” is sale or otherwise transfer by the eligible company. Within 5 years from the date of acquisition.
- If the deposit account is not utilize fully or partly by the eligible company for purchasing. The new asset within 1 year from the date of subscription in equity shares (by the assessee).
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