Capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area – Section 54H. This section provides exemption on transfer of asset in the case of shifting of industrial undertaking from the urban area to non-urban area. For this purpose, “urban area” means any such area within the limits of a municipal corporation as the Central Government may, having regard to the population, concentration of industries and other relevant factors, declare to be an urban area for the purposes of this section. Exemption can be availed if the following conditions are satisfied:

 

1. A capital asset being plant, machinery, land or building or any right in land or building used for the purpose of an industrial undertaking situated in an urban area is transferred.

 

2. The transfer is effected for the purpose of shifting of such industrial undertaking from urban area to non-urban area.

 

3. Acquired land/ building or constructed building for the business in the said area

 

4. Shifted the original asset and transferred the establishment to such area.

 

5. Incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section.

 

1. Scheme of Deposit

 

The new asset can be purchased/ constructed within 3 years from the date of transfer of original asset. However, the taxpayer has to submit his return of income on or before the due-date of submission of return of income. The deposit should be utilized for purchase/ construction of new property within the stipulated time-frame. The unutilized amount will be taxable in the year in which the 3-year time limit expires. It shall be treated as long-term or short-term capital gains depending upon the original capital gain.

 

2. Amount of Exemption

 

The amount of exemption under section 54GA would be lower of the following:

 

1. The amount of capital gain generated on transfer of capital assets in the case of shifting of an industrial undertaking.

 

2. The cost and expenses incurred in relation to all or any of the purposes mentioned in (a) to (e) above.

 

3. Capital Gain on Transfer of Residential Property – Section 54H

 

Section 54H has been introduced for the assesse to finance their small/medium enterprise by transferring their residential property. It encourages investment in SME segment (Small & Medium Enterprises) in the manufacturing sector. Exemption under this section is available if the following conditions are satisfied:

 

1. The asset transferred should be a long-term residential property. It may be a house or a plot of land.

 

2. The transfer should take place during April 1, 2012 and March 31, 2017.

 

3. The assesse will have to utilize the net sale consideration for subscription in equity shares in an “eligible company”, before the due-date of furnishing of return of income.

 

4. The eligible company should utilize this amount for the purchase of a “new asset “, before the due-date of furnishing of return of income by the assesse or shall deposit the amount in capital gain deposit account.

 

4. Eligible Company

 

It means a company which satisfies the following conditions:

 

1. It is incorporated on or after April 1 of the previous year in which residential property is transferred but on or before the due-date of furnishing the return of income under section 139 (1) by the assesse.

 

2. It is engaged in the business of manufacture of any article or thing.

 

3. The assesse has more than 50% share capital/voting right after subscription in shares by assesse.

 

4. The company qualifies to be a SME under the Micro, Small and Medium Enterprises Act, 2006.i.e. its investment in plant and machinery should be more than Rs.25 lakhs but less than Rs.10 crores.

 

5. New Asset

 

It means new plant and machinery but does not include the following:

 

1. Any plant or machinery which is used in India or outside India by any person before its installation by the eligible company.

 

2. Any once appliance.

 

3. Computer/ Computer software.

 

4. Any vehicle.

 

6. Revoke of Exemption

 

It shall be taxable as long term capital gain of the assesse in the year in which the assesse or the eligible company commits the following defaults:

 

1. If the equity shares in the eligible company are sold or otherwise transferred by the assesse within 5 years from the date of its acquisition.

 

2. If the deposit account is not utilized 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 assesse.

 

7. Extension of Time Limit for Acquiring New Asset – Section 54H

 

Where the transfer of a capital asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assesse on the date of such transfer, then for availing the benefit under sections 54, 54B, 54D, 54EC and 54F the time limit shall be reckoned from the date of receipt of such compensation.

 

8. Initial Compensation

 

If the initial compensation is received in parts, then the entire compensation is taxable in the year in which a part is first received. However, the time limit for acquiring new asset or for depositing the amount of capital gain in Capital Gain Account Scheme under sections 54, 54B, 54D, 54EC & 54F shall be determined on the basis of dates of receipt of different parts of initial compensation.

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