Capital Gain Exemptions

20 Oct 2022

Capital Gain Exemptions


Capital gain is the difference between full value of consideration (FVOC) received on sale or transfer less expenses incurred in connection of transfer and cost/index cost  of acquisition(COA/ICOA) of capital asset.

For example-  


  1. Exemption under section 54 on capital gain on sale of residential house property.


When an Assessee sells a residential house property after holding it for 3 years or more(i.e long term capital asset) and purchases/constructs another residential house property within specified period of time, then he/she is eligible to claim exemption under this section 54 of an amount lower of capital gain or amount invested for purchase/construction of another residential house property.


Conditions:

  1. Eligible Assessee- Individual/HUF

  2. Nature of Asset- Long term capital asset i.e. property held for 3yeras or more.

  3. To get exemption on capital gain, the Assessee need to purchase one residential house property within 1 years before or 2 years after the date of transfer OR complete construction of one residential house property within 3 years after the date of transfer.

  4. If investment not made before due date of filing of return, then the amount has to be deposited under the Capital Gains Account Scheme(CGAS)



  1. Exemption under section 54F on capital gain on sale of any capital asset


When an Assessee sells any Capital Asset and purchases/constructs another residential house property within specified period of time, then he/she is eligible to claim exemption under this section 54F of an amount lower of capital gain or amount invested for purchase/construction of another residential house property


Conditions:

  1. Eligible Assessee- Individual/HUF

  2. Nature of Asset- Long term capital asset i.e. property held for 3yeras or more.

  3. Assessee should not own more than one residential house On the date of transfer of capital Asset,

  4. To get exemption on capital gain, the Assessee need to purchase one residential house property within 1 years before or 2 years after the date of transfer OR complete construction of one residential house property within 3 years after the date of transfer.

  5. If investment not made before due date of filing of return, then the amount has to be deposited under the Capital Gains Account Scheme(CGAS)




  1. Exemption under section 54GB on capital gain on sale of residential property (house property or plot of land)


When an Assessee sells a residential house property after holding it for 3 years or more(i.e long term capital asset) and purchases subscription in equity share of eligible company upto due date of return filing, then he/she is eligible to claim exemption under this section 54GB of an amount lower of capital gain or amount invested for purchase of eligible equity shares.


Conditions:

  1.  Eligible Assessee- Individual/HUF

  2. Nature of Asset- Long term capital asset i.e. property held for 3yeras or more.

  3. To get exemption on capital gain, the Assessee need to purchase subscription in equity shares of eligible companies upto due date of return filing.


  1. Exemption under section 54B on capital gain on sale of Urban agricultural land


When an Assessee sells a Urban agricultural land and purchases one agricultural land within specified period of time, then he/she is eligible to claim exemption under this section 54B of an amount lower of capital gain or amount invested for purchase of eligible equity shares.



Conditions:

  1. Eligible Assessee- Individual/HUF

  2. Nature of Asset- Long term/short term capital asset

  3. To get exemption on capital gain, the Assessee need to purchase one agricultural land within 2 years after the date of transfer.

  4. If investment not made before due date of filing of return, then the amount has to be deposited under the Capital Gains Account Scheme(CGAS)


  1. Exemption under section 54D on capital gain on Compulsory acquisition of land & building used in the business of industrial undertaking during 2 years prior to the date of compulsory acquisition.


When an Assessee made capital gain on Compulsory acquisition of land & building used in the business of industrial undertaking during 2 years prior to the date of compulsory acquisition and purchase one new land or building for the industrial undertaking within specified period of time, then he/she is eligible to claim exemption under this section 54D of an amount lower of capital gain or amount invested for purchase of  new land or building for the industrial undertaking.


Conditions:

  1. Eligible Assessee- Any person

  2. Nature of Asset- Long term/short term capital asset

  3. To get exemption on capital gain, the Assessee needs to purchase one new land or building for the industrial undertaking within 3 years from the date of receipt of compensation.

  4. If investment not made before due date of filing of return, then the amount has to be deposited under the Capital Gains Account Scheme(CGAS)



  1. Exemption under section 54EC on capital gain on sale of land, Building or both.


When an Assessee sells a residential house property after holding it for 3 years or more(i.e long term capital asset) and Bonds redeemable after 5 years issued by certain Authorities within specified period of time, then he/she is eligible to claim exemption under this section 54EC of an amount lower of capital gain or amount invested for purchase of eligible Bonds.



Conditions:

  1. Eligible Assessee- Any person

  2. Nature of Asset- Long term capital asset i.e. property held for 3yeras or more.

  3. To get exemption on capital gain, the Assessee needs to purchase Bonds redeemable after 5 years issued by certain Authorities (see note below) within 6 months from the date of transfer of original asset.

  4. Maximum exemption limit Rs.50lacks.


Note:  Bonds redeemable after 5 years issued by

                   i.   National Highway Authority of India(NHAI)

                   ii.  Rural Electrification Corporation Ltd. (RLCL)

                   iii.  Power Finance Corporation Ltd. (PFCL)

                   iv.  Indian Railway Finance Corporation Ltd. (IRFCL)



  1. Exemption under section 54G on capital gain on sale/shifting of plant and machinery or land or building for shifting industrial undertaking from urban area to rural area.


When an Assessee sells/shifts a plant and machinery or land or building for shifting industrial undertaking from urban area to rural area, then he/she is eligible to claim exemption under this section 54G of an amount lower of capital gain or amount invested in purchase/ construction of new plant & machinery, land or building.


Conditions:

  1. Eligible Assessee- Any person

  2. Nature of Asset- Long term/short term capital asset

  3. To get exemption on capital gain, the Assessee need to                           (a) purchase/construct new plant & machinery, land or building in such rural area or                                                                                            (b)shifting original assets to that area or                                      (c)incurring notified expenses 

within one year before the date of transfer or three years after the date of transfer.

  1. If investment not made before due date of filing of return, then the amount has to be deposited under the Capital Gains Account Scheme(CGAS)





  1. Exemption under section 54GA on capital gain on sale/shifting of plant and machinery or land or building for shifting industrial undertaking from urban area to SEZ.


When an Assessee sells/shifts a plant and machinery or land or building for shifting industrial undertaking from urban area to SEZ, then he/she is eligible to claim exemption under this section 54GA of an amount lower of capital gain or amount invested in purchase/ construction of new plant & machinery, land or building.


Conditions:

  1. Eligible Assessee- Any person

  2. Nature of Asset- Long term/short term capital asset

  3. To get exemption on capital gain, the Assessee need to  

(b)shifting original assets to that area or

(c)incurring notified expenses 

within one year before the date of transfer or three years after the date of transfer.

  1. If investment not made before due date of filing of return, then the amount has to be deposited under the Capital Gains Account Scheme(CGAS)

Manojit Das