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In case, We are a industrial undertaking (factory)

And there has been compulsory acquisition of our factory land and building

And we set up new factory or shift our facrory

Then LTCG/STCG on Compulsory Acquisition will be  exempt

 

Conditions to be Fulfilled

  • Deduction is available only to all assessees but they should be industrial undertaking (factory)
  • This deduction is on both LTCG and STCG
  • Land Building must be used in for industrial purposefor 2 years preceding date of transfer
  • Person should invest the amount of LTCG in purchasing new Land or Building for setting up new industrial undertaking,shifting

 

Time Period

  • New Land must be purchased or constructed within 3 years of date of transfer

 

Amount Exempt is Lower of

  • Amount of Long Term Capital Gain
  • Amount Invested

 

Question 1 

Factory land purchased by Mr A for 5 lacs in May 2013 for the purpose of his manufacturing business

It was compulsory acquired by Government and compensation received was Rs 7 lacs in June 2015

Mr A  purchased new factory building for 10 lacs in July 2015 and shifted his factory there

What is treatment?

-a-

Exemption under Section 54D  is available as

  • There is compulsory acquisition of factory land and building
  • Mr is an industrial undertaking having used factory for 2 years
  • it is STCG
  • Also new land building is purchased within 3 years of transfer

 

Particulars

Amt

Full Value of Consideration

700000

 

 

Less

 

 

 

COA

500000

 

 

Short Term Capital  Gain/(Loss)

200000

 

 

Less

 

Exemption under Section 54D

 

Lower of

 

Amount Invested

1000000

STCG

200000

Lower

200000

 

 

Income from Capital Gain

0

-ea-

Q2

Solve last question assuming factory land was purchased in May 2014

-a-

Since,it is not used for 2 years for industrial purpose before date of transfer,exemption will not be available

Particulars

Amt

Full Value of Consideration

700000

 

 

Less

 

 

 

COA

500000

 

 

Short Term Capital  Gain/(Loss)

200000

 

 

Less

 

Exemption under Section 54D

 0

 

 

 

 

Income from Capital Gain

200000

-ea-

Consequences if New Land/Building Sold within 3 years

STCA will be calculated on Sale

Amount of Capital Gain Exempt earlier will be reduced from Cost while Calculating this STCA

 

Q3

Suppose in  Q1 above,new Factory  Land which was purchased for 1000000 in July 15 was later sold for 1500000 in August 2016

-a-

Amount of Capital gain exempt earlier will be reduced from COA

Particulars

Amt

Full Value of Consideration

1500000

 

 

Less

 

Expenses of Transfer

0

COA

800000

(1000000-200000)

 

COI

 

Short Term Capital  Gain/(Loss)

700000  

-ea-

  1. Income from Capital Gains
  2. Exemptions
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About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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