Capital Gain Exemption

Updated upto A.Y. 2018-19


As per sec. 45(1), profits or gains arising on transfer of a capital asset shall be chargeable under the head “Capital Gains” if following essential conditions are satisfied:

  1. There must be a capital asset.
  2. The assessee transfers such capital asset.
  3. There must be profit or gain (including negative profit or gain) on such transfer.

From capital gain so computed, several deductions are allowed as per provisions of sections 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA and 54GB. Provisions of these sections are discussed as under:

W.e.f. A.Y. 2006-07, Sec.54GA inserted, provisions of which are parallel to sec. 54G but applicable when industrial undertaking is shifted to SEZ

Capital Gains Accounts Scheme, 1988

IntroductionIf the new asset is not acquired till the due date of submission of return of income, then the taxpayer will have to deposit the money in ‘Capital Gains Deposit Account’ with a nationalized bank. The proof of deposit should be submitted along with the return of income. On the basis of actual investment and the amount deposited in the deposit account, exemption will be given to the taxpayer.
Utilisation of amountThe taxpayer is to acquire a new asset by withdrawing from the deposit account. New asset must be acquired within specified time, provided in the relevant section.
If deposit amount remains unutilizedThe unutilized amount will become chargeable to tax in the previous year in which the specified time limit expires. Chargeable amount shall be –
For sec. 54, 54B, 54D, 54G, 54GA: Unutilised amount
For sec. 54F & 54GB: Unutilised amount x Capital Gain / Net Sale Consideration
Nature of gainIt will be taxable as short term or long-term capital gain depending upon the status of the original capital gain.
  1. The unutilized amount can be withdrawn by the taxpayer after the expiry of the aforesaid time limit.
  2. The unutilized amount in Capital Gain Account Scheme (1988), in hands of legal heir of deceased individual, cannot be taxed. [Circular No.743 dated 6/5/1996]
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