54E. Capital gain on transfer of capital assets not to be charged in certain cases.
Updated: Sep 29, 2022
According to section 54EB of the Income Tax Act of 1961, capital gain on the transfer of long-term capital assets not to be charged in certain cases. There are three clauses in this section.
First clause states that When the capital gain results from the transfer of a long-term capital asset [prior to the 1st day of April, 2000] (the capital asset so transferred being referred to in this section as the original asset), and the assessee has invested the entire or any portion of capital gains in any of the assets specified by the Board in this regard by notification in the Official Gazette (such assets his), at any time within a period of six months after the date of such transfer, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say:-
Section 45 will not be applied to the entirety of a capital gain if the cost of the long-term defined asset is more than the capital gain resulting from the transfer of the original asset;
The amount of the capital gain that bears to the total capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the total capital gain, if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, shall not be subject to section 45.
Cost" refers to the amount invested in a long-term specified asset out of capital gains that were received or accrued as a result of the transfer of the original asset.
Further second clause states that Where the long-term specified asset is transferred or converted into money at any time within a period of seven years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a), or as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which the long-term specified asset is transferred or converted into money.
When the original asset is transferred and the assessee invests all or a portion of the capital gain realised as a result of the transfer in a long-term specified asset and takes a loan or advance using the security of that specified asset, he is considered to have converted the specified asset into money on the date that loan or advance was taken (other than by transfer).
When the cost of the long-term defined asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1), a deduction from the amount of income-tax with reference to such cost must not be allowed under section 88. This is stated in the concluding clause.