• Shruti Sharma

54D. Capital gain on compulsory acquisition of lands and buildings not to be charged in certain case

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The Income Tax Act of 1961, Section 54D, exempts from taxation capital gains that result from the forced acquisition of land, a building, or any right in land or a building (the original asset) that belonged to an industrial undertaking under any capital asset regulation.


The section was introduced to give the relief to those taxpayers who has to pay tax on capital gain arises upon compulsory acquisition of their land or building which is of industrial undertaking.


These taxpayers are now eligible for an exemption under this provision if they meet specific requirements.


ELIGIBLE FOR AVAILING EXEMPTION

The exemption under section 54D is available to all assessees, which includes individuals, HUFs, firms, AOPs, BOIs, and corporations, among others.



CONDITIONS FOR AVAILING EXEMPTION

  • This exemption is only applicable when industrial property is acquired by compulsory acquisition and has been used for industrial purposes for the two years immediately prior to the transfer date.

  • Compulsory acquisition may result in long-term or short-term gains. This exemption is therefore valid in both situations.

  • Gain from a compulsory acquisition must be put to use within three years after the transfer date to buy or build any other property or building.

  • Additionally, the goal of the new property or structure must be relocation or re-establishment.


AMOUNT OF EXEMPTION

  • One is allowed to Avail exemption to the extent of invested amount.


WITHRAWAL OF EXEMPTION

  • According to this section, if you transfer a newly acquired/constructed piece of land or a building within three years, the exemption that had previously been granted will be withdrawn, and your gain from the transfer will be determined after deducting the exemption from the cost of purchasing the land or building.

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