Section 54E - Capital gain on transfer of capital assets not to be charged in certain cases - Income-tax Act, 1961

1 [Capital gain on transfer of capital assets not to be charged in certain cases. 54E. (1) Where the capital gain arises from the transfer of a 2 [ long-term capital asset ] 3 [ before the 1st day of April, 1992 ], (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, within a period of six months after the date of such transfer, invested or deposited the 4 [ whole or any part of the net consideration ] in any specified asset (such specified asset being hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- ( a ) if the cost of the new asset is not less than the 5 [ net consideration ] in respect of the original asset, the whole of such capital gain shall not be charged under section 45; ( b ) if the cost of the new asset is less than the 6 [ net consideration ] in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the new asset bears to the 7 [ net consideration ] shall not be charged under section 45: 8 [Provided that in a case where the original asset is transferred after the 28th day of February, 1983, the provisions of this sub-section shall not apply unless the assessee has invested or deposited the whole or, as the case may be, any part of the net consideration in the new asset by initially subscribing to such new asset: ] 9 [Provided further that in a case where the transfer of the original asset is by way of compulsory acquisition under any law and the full amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, the period of six months referred to in this sub-section shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee 10 [ or the 31st day of March, 1992, whichever is earlier ].] Explanation 1 .- 11 [ For the purposes of this sub-section, specified asset means,- ( a ) in a case where the original asset is transferred before the 1st day of March, 1979, any of the following assets, namely:- ] ( i ) securities of the Central Government or a State Government; ( ii ) savings certificates as defined in clause ( c ) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959); ( iii ) units in the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); ( iv ) debentures specified by the Central Government for the purposes of clause ( ii ) of sub-section (1) of section 80L; ( v ) shares in any Indian company which are issued to the public or are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder, 12 [ where the investment in such shares is made before the 1st day of March, 1978 ]; 13 [ ( va ) equity shares forming part of any eligible issue of capital, where the investment in such shares is made after the 28th day of February, 1978; ] ( vi ) deposits for a period of not less than three years with the State Bank of India established under the State Bank of India Act, 1955 (23 of 1955), or any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) or any nationalised bank, that is to say, any corresponding new bank, constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); 14 [ ( b ) in a case where the original asset is transferred after the 28th day of February, 1979 15 [ but before the 1st day of March, 1983 ], such National Rural Development Bonds as the Central Government may notify in this behalf in the Official Gazette; ] 16 [ ( c ) in a case where the original asset is transferred after the 28th day of February, 1983 17 [ but before the 1st day of April, 1986 ], any of the following assets, namely :- ( i ) securities of the Central Government which that Government may, by notification in the Official Gazette, specify in this behalf; ( ii ) special series of units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), which the Central Government may, by notification in the Official Gazette, specify in this behalf; ( iii ) such National Rural Development Bonds as have been notified under clause ( b ) of Explanation 1 or as may be notified in this behalf under this clause by the Central Government; ( iv ) such debentures issued by the Housing and Urban Development Corporation Limited [a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956)], as the Central Government may, by notification in the Official Gazette, specify in this behalf; ] 18 [ ( d ) in a case where the original asset is transferred after the 31st day of March, 1986, any of the assets specified in clause ( c ) and such bonds issued by any public sector company, as the Central Government may, by notification in the Official Gazette, specify in this behalf; 19 [ *** ]] 20 [ ( e ) in a case where the original asset is transferred after the 31st day of March, 1989, any of the assets specified in clauses ( c ) and ( d ) and such debentures or bonds issued by the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 (53 of 1987), as the Central Government may, by notification in the Official Gazette, specify in this behalf .] 21 [ Explanation 2 .- Eligible issue of capital shall have the meaning assigned to it in sub-section (3) of section 80CC. ] 22 [ Explanation 3 .-An assessee shall not be deemed to have invested the 23 [ whole or any part of the net consideration in any equity shares referred to in sub-clause ( va ) of clause ( a ) ] of Explanation 1 , unless the assessee has subscribed to or purchased the shares in the manner specified in sub-section (4) of section 80CC. ] Explanation 24 [ 4 ] . - Cost , in relation to any new asset, being a deposit referred to in 25 [ sub-clause ( vi ) of clause ( a ) ] of Explanation 1 , means the amount of such deposit. 26 [ Explanation 5. - Net consideration , in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. 27 [ (1A) Where the assessee deposits after the 27th day of April, 1978, the 28 [ whole or any part of the net consideration in respect ] of the original asset in any new asset, being a deposit referred to in 29 [ sub-clause ( vi ) of clause ( a ) ] of Explanation 1 below sub-section (1), the cost of such new asset shall not be taken into account for the purposes of that sub-section unless the following conditions are fulfilled, namely :- ( a ) the assessee furnishes, along with the deposit, a declaration in writing, to the bank or the co-operative society referred to in the said 30 [ sub-clause ( vi ) ] with which such deposit is made, to the effect that the assessee will not take any loan or advance on the security of such deposit during a period of three years from the date on which the deposit is made; ( b ) the assessee furnishes, along with the return of income for the assessment year relevant to the previous year in which the transfer of the original asset was effected or within such further time as may be allowed by the 31 [ Assessing ] Officer, a copy of the declaration referred to in clause ( a ) duly attested by an officer not below the rank of sub-agent, agent or manager of such bank or an officer of corresponding rank of such co-operative society. ] 32 [ (1B) Where on the fulfilment of the conditions specified in sub-section (1A), the cost of the new asset referred to in that sub-section is taken into account for the purposes of sub-section (1), the assessee shall, within a period of ninety days from the expiry of the period of three years reckoned from the date of such deposit, furnish to the 33 [ Assessing ] Officer a certificate from the officer referred to in clause ( b ) of sub-section (1A) to the effect that the assessee has not taken any loan or advance on the security of such deposit during the said period of three years. ] 34 [ (1C) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of the original asset, made after the 31st day of March, 1992, in respect of which the assessee had received any amount by way of advance on or before the 29th day of February, 1992 and had invested or deposited the whole or any part of such amount in the new asset on or before the later date, then, the provisions of clauses ( a ) and ( b ) of sub-section (1) shall apply in the case of such investment or deposit as they apply in the case of investment or deposit under that sub-section. ] (2) Where the new asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause ( a ) or, as the case may be, clause ( b ), of sub-section (1) shall be deemed to be income chargeable under the head Capital gains relating to 35 [ long-term capital assets ] of the previous year in which the new asset is transferred or converted (otherwise than by transfer) into money .] 36 [ 37 [ Explanation 1 ].- Where the assessee deposits after the 27th day of April, 1978, the 38 [ whole or any part of the net consideration in respect ] of the original asset in any new asset, being a deposit referred to in 39 [ sub-clause ( vi ) of clause ( a ) ] of Explanation 1 below sub-section (1), and such assessee takes any loan or advance on the security of such deposit, he shall be deemed to have converted (otherwise than by transfer) such deposit into money on the date on which such loan or advance is taken. ] 40 [ Explanation 2 . - In a case where the original asset is transferred after the 28th day of February, 1983 and the assessee invests the whole or any part of the net consideration in respect of the original asset in any new asset and such assessee takes any loan or advance on the security of such new asset, he shall be deemed to have converted (otherwise than by transfer) such new asset on the date on which such loan or advance is taken. ] 41 [ **** ] 42 [ **** ] 43 [ **** ] 44 [ (3) ] Where the cost of the equity shares referred to in 45 [ sub-clause ( va ) of clause ( a ) ] of Explanation 1 below sub-section (1) is taken into account for the purposes of clause ( a ) or clause ( b ) of sub-section (1) 46 [ **** ] , a deduction with reference to such cost shall not be allowed under section 80CC. **************** NOTES:- 1. Inserted vide Section 13 of the Finance (No. 2) Act, 1977 w.e.f. 01-04-1978 2. Substituted vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, capital asset, not being a short-term capital asset 3. Inserted vide Section 30 of the Finance Act, 1992 w.e.f. 01-04-1992 4. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of the consideration or any part thereof received or accruing as a result of such transfer 5. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of consideration received or accruing 6. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of consideration received or accruing 7. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of such consideration 8. Inserted vide Section 20 of the Finance Act, 1983 w.e.f. 01-04-1983 9. Inserted vide Section 16 of the Taxation Laws (Amendment) Act, 1984 w.e.f. 01-04-1984 10. Inserted vide Section 30 of the Finance Act, 1992 w.e.f. 01-04-1992 11. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, For the purposes of this sub-section and sub-section (3), specified asset means any of the following assets, namely:- Earlier , Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 12. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 13. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 14. Inserted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 15. Inserted vide Section 20 of the Finance Act, 1983 w.e.f. 01-04-1983 16. Inserted vide Section 20 of the Finance Act, 1983 w.e.f. 01-04-1983 17. Inserted vide Section 12 of the Finance Act, 1986 w.e.f. 01-04-1987 18. Inserted vide Section 12 of the Finance Act, 1986 w.e.f. 01-04-1987 19. Omitted vide Section 74 of the Finance Act, 1987 w.e.f. 01-04-1987 before it was read as, Explanation : For the purposes of this clause, public sector company means any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 6 17 of the Companies Act, 1956 (1 of 1956). 20. Inserted vide Section 12 of the Finance Act, 1989 w.e.f. 01-04-1990 21. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 22. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 23. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of the consideration or any part thereof in any equity shares referred to in clause (va) 24. Re-Numbered vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 before it was read as, 2 25. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, clause (vi) 26. Inserted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 27. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 28. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of the consideration or any part thereof received or accruing as a result of the transfer 29. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, clause (vi) 30. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, clause (vi) 31. Substituted vide Section 2 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1988 before it was read as, Income-tax 32. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 33. Substituted vide Section 2 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1988 before it was read as, Income-tax 34. Inserted vide Section 30 of the Finance Act, 1992 w.e.f. 01-04-1992 35. Substituted vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, capital assets other than short-term capital assets 36. Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 37. Numbered vide Section 20 of the Finance Act, 1983 w.e.f. 01-04-1983 38. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, full value of the consideration or any part thereof received or accruing as a result of the transfer 39. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, clause (vi) 40. Inserted vide Section 20 of the Finance Act, 1983 w.e.f. 01-04-1983 41. Omitted vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, (3) Where the transfer of the original asset is by way of compulsory acquisition under any law or where the full value of the consideration for the transfer of the capital asset is determined or approved by the Central Government or the Reserve Bank of India, and the compensation awarded for such acquisition or, as the case may be, the full value of the consideration so determined or approved is enhanced by any court, tribunal or other authority, then, so much of the capital gain, computed under section 48 by taking the compensation or consideration as so enhanced as the full value of the consideration received or accruing as a result of such transfer, as is attributable to the enhancement of the compensation or consideration (hereafter in this sub-section referred to as the unadjusted capital gain) shall, if the assessee has, within a period of six months after the date of receipt of the additional compensation or, as the case may be, the additional consideration, inverted or deposited the whole or any part of such additional compensation or consideration in any specified asset (hereafter in this section referred to as the relevant asset), be dealt with in the following manner, that is to say, - (a) if the cost of the relevant asset is not less than the additional compensation or consideration, the whole of the unadjusted capital gain shall not be charged under section 45; (b) if the cost of the relevant asset is less than the additional compensation or consideration, so much of the unadjusted capital gain as bears to the whole of the unadjusted capital gain the same proportion as the cost of acquisition of the relevant asset bears to the additional compensation or consideration shall not be charged under section 45. Explanation : For the purposes of this sub-section, - (i) additional compensation shall have the meaning assigned to it in clause (1) of the Explanation to sub-section (2) of section 54; (ii) additional consideration , in relation to the transfer of any capital asset the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, means the difference between the amount of consideration for such transfer as enhanced by any court, tribunal or other authority and the amount of consideration which would have been payable if such enhancement had not been made; (iii) cost , in relation to any relevant asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1 below sub-section (1), means the amount of such deposit; (iiia) specified asset means - (a) in relation to any additional compensation or additional consideration received before the 1st day of March, 1979, any of the assets referred to in clause (a) of Explanation 1 below sub-section (1); (b) in relation to any additional compensation or additional consideration received after the 28th day of February, 1979, the National Rural Development Bonds referred to in clause (b) of Explanation 1 below sub-section (1); (c) in relation to any additional compensation or additional consideration received after the 28th day of February, 1983, in any of the assets referred to in clause (c) of Explanation 1 below sub-section (1) by way of initial subscription thereto; (iv) the capital gain attributable to the enhancement by any court, tribunal or other authority of the compensation for the compulsory acquisition of any capital asset or of the consideration for the transfer of any capital asset as determined or approved by the Central Government or the Reserve Bank of India shall be deemed to be so much of the capital gain arising from the transfer of the capital asset as bears to the whole of the capital gain as computed u/s. 48 by taking the compensation or consideration as so enhanced as the full value of the consideration received or accruing as a result of the transfer, the same proportion as the amount of additional compensation or consideration bears to the compensation or consideration as so enhanced. Earlier , Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 And was Amended vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 And was Amended vide Section 20 of the Finance Act, 1983 w.e.f. 01-04-1983 42. Omitted vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, (4) Where the relevant asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition, the amount of capital gain arising from the transfer of the original asset not charged u/s. 45 on the basis of the cost of such relevant asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (3) shall be deemed to be income chargeable under the head Capital gains relating to capital assets other than short-term capital assets of the previous year in which the relevant asset is transferred or converted (otherwise than by transfer) into money. Explanation : Where the assessee deposits after the 27th day of April, 1978, the whole or any part of the additional compensation or, as the case may be, the additional consideration referred to in sub-section (3) in any relevant asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1 below sub-section (1), and such assessee takes any loan or advance on the security of such deposit, he shall be deemed to have converted (otherwise than by transfer) such deposit into money on the date on which such loan or advance is taken. Earlier , Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 And was Amended vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 43. Omitted vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, (5) Where the assessee deposits the whole or any part of the additional compensation or, as the case may be, the additional consideration referred to in sub-section (3) in any relevant asset, being a deposit referred to in sub-clause (vi) of clause (a) of Explanation 1 below sub-section (1), the provisions of sub-section (1A) and (1B) shall apply in relation to such deposit as they apply in relation to the deposit referred to in the said sub-sections. Earlier , Inserted vide Section 13 of the Finance Act, 1978 w.e.f. 01-04-1978 And was Amended vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 44. Re-Numbered vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, (6) 45. Substituted vide Section 8 of the Finance Act, 1979 w.e.f. 01-04-1979 before it was read as, clause (va) 46. Omitted vide Section 22 of the Finance Act, 1987 w.e.f. 01-04-1988 before it was read as, or clause (a) or clause (b) of sub-section (3)