The Income Tax Department has released an updated reference guide outlining the various capital gain exemptions available on capital gains under the Income Tax Act. The circular provides clarity on eligibility, qualifying assets, nature of capital gains, investment avenues, time limits, and conditions for availing exemptions under multiple sections, including Section 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA, and 54GB.
Key Highlights of Capital Gains Exemptions
Section 54 – Individuals and Hindu Undivided Families (HUFs) can claim exemption on long-term capital gains arising from the sale of residential property if invested in a new residential property in India. The exemption is the lower of the capital gain or the investment amount.
Section 54B – Available to individuals and HUFs for capital gains from the transfer of agricultural land, provided the gains are reinvested into agricultural land within 2 years.
Section 54D – Applicable to capital gains arising from compulsory acquisition of land or building forming part of an industrial undertaking. Reinvestment must be made in land or building for industrial purposes.
Section 54EC – Long-term capital gains can be exempt if invested in specified bonds (like those of NHAI or REC) within 6 months. The maximum exemption is limited to ₹50 lakh.
Section 54EE – Allows exemption on long-term capital gains if invested in notified units of specified funds up to a maximum of ₹50 lakh.
Section 54F – Applies to long-term capital gains from any asset (other than a residential house), provided the proceeds are invested in a new residential house. Proportionate exemption is allowed based on investment.
Section 54G & 54GA – Exemptions are available when capital gains arise from shifting industrial undertakings from urban to non-urban areas (54G) or to Special Economic Zones (54GA). Investments must be made in new plant, machinery, land, or buildings.
Section 54GB – Provides exemption for individuals or HUFs on capital gains from sale of residential property if invested in equity shares of eligible start-ups or SMEs, with conditions for utilization by the company.
Important Notes
Maximum Exemption Cap: The cost of the new asset should not exceed ₹10 crore. If the investment is not made directly but deposited in the Capital Gains Account Scheme (CGAS), the exemption will still be capped at ₹10 crore (effective from AY 2024-25).
Strict Timeframes: Most exemptions require investments within 6 months to 3 years, or deposit into CGAS before filing the return.
Withdrawal of Exemption: If the new asset is transferred or conditions are not met within the specified period, the exemption will be withdrawn.
Mariya is the Senior Editor at Juris Hour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
