Conditions for Section 54D
There must be compulsory acquisition of land and building or any right in land or building forming part of an industrial undertaking.
The land and building should have been used by the assessee for purposes of the business of the industrial undertaking in the 2 years immediately preceding the date of transfer.
The assessee must purchase any other land or building or construct any building (for shifting or re-establishing the existing undertaking or setting up a new industrial undertaking) within 3 years from the date of transfer.
If such investment is not made before the date of filing of return of income, then the capital gain has to be deposited under the CGAS. (Refer point (vi) and (vii) of this sub-heading). Amount utilized by the assessee for purchase of new asset and the amount so deposited shall be deemed to be the cost of new asset.
Quantum of exemption under section 54D
- If cost of new asset ≥ Capital gains, entire capital gains is exempt.
- If cost of new asset < Capital gains, capital gains to the extent of cost of new asset is exempt.
The exemption in respect of capital gains from transfer of capital asset would be available even in respect of short-term capital asset, being land or building or any right in any land or building, provided such capital asset is used by assessee for the industrial undertaking belonging to him, even if he was not the owner for the said period of 2 years
If the new asset is transferred before 3 years from the date of its acquisition, then cost of the asset will be reduced by capital gains exempted earlier for computing capital gains.