Blue and Beige Minimalist Annual Report Presentation

PRESUMPTIVE TAXATION FOR RESIDENTS

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PRESUMPTIVE TAXATION FOR RESIDENTS

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SECTION 44AD: PROFIT & GAINS OF BUSINESS ON PRESUMPTIVE BASIS

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A.Eligible Assessee: Eligible assessee’s are Resident Individual/ Resident HUF/ Resident Firms (excluding LLP) who has not claimed deduction u/s 10AA or 80IA or 80RRB.
B.This section is applicable for any Business except– Section 44AE Business, Agency Business, Commission & Brokerage Business.
C.Gross Turnover/ Receipts is up to Rs. 2 Crores, provided where, the amounts received during the P.Y in cash does not exceed 5% of the total turnover or gross receipts of such P.Y then limit of turnover/ gross receipts will be Rs. 3 crores instead of Rs. 2 crores.

Note: Cheque/ DD, which is not account payee, shall be treated as cash.

D.Presumptive PGBP income: Turnover/ Gross receipts * 8%, if Turnover/ Gross receipts realized by Account payee Cheque/ DD/ ECS up to due date of return filing then presumptive income will be Turnover/ Gross Receipts * 6%.
E.If assessee declares income as per Section 44AD or higher income and whose Turnover is up to Rs. 2cr/ 3cr as the case may be then assessee is not required to maintain books of accounts & get it audited.
F.If assessee declares income for any P.Y as per Section 44AD & he does not declare income as per 44AD in any of the five consecutive P.Y’s, then he shall not eligible to claim benefit of Section 44AD for 5 Years subsequent to the year in which assessee did not declare income as per Section 44AD.
G.If point (f) is applicable & Net Taxable Income is more than basic exemption limit, then assessee is required to maintain books of accounts & get it audited.

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Example: Let us consider the following particulars relating to a resident Individual, Ms. Harsha being an eligible assessee whose turnover does not exceeds Rs. 2 Crores in any of the A.Y between A.Y 24-25 to A.Y 26-27.

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In the above case Ms. Harsha, an eligible assessee opts for presumptive taxation u/s 44AD for A.Y 24-25 & A.Y 25-26. However, for A.Y 26-27, he offers income of only Rs. 10 lakhs on turnover of Rs. 2 Crores, which amounts to 5% of his gross receipts. She has to maintain books of accounts u/s 44AA & gets the same audited u/s 44AB. Since she has not offered income in accordance with the provisions of Section 44AD, for five consecutive years after A.Y 24-25, she will not be eligible to claim the benefit of Section 44AD for next 5 A.Y succeeding A.Y 26-27 i.e. from A.Y. 27-28 to 31-32.

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Particulars

A.Y 24-25

A.Y 25-26

A.Y 26-27

Total T/o (All cash)

1,80,00,000

1,90,00,000

2,00,00,000

Income offered for Tax

14,40,000

15,20,000

10,00,000

% of gross receipts

8%

8%

5%

Offered income as per 44AD

Yes

Yes

No

SECTION 44ADA: PROFIT & GAINS OF PROFESSION ON PRESUMPTIVE BASIS

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A.Eligible Assessee: Eligible assessee’s are Resident Individual or Resident Firm (excluding LLP) engaged in profession as referred to in Section 44AA.
B.This Section is applicable if Gross Receipts is up to Rs. 50 lakhs. However, if the amount received during the P.Y in cash does not exceed 5% of the gross receipts of such P.Y the limit of Gross Receipts of Rs. 75 lakhs shall apply instead of Rs. 50 lakhs.

Note: Cheque/ DD, which is not account payee, shall be treated as cash.

C.Presumptive PGBP income: Gross Receipts * 50%.
D.if assessee declares income as per Section 44ADA or higher then, he is not required to maintain books of accounts & get it audited.
E.If assessee declares income lower than 50% and his net taxable income is more than the basic exemption limit, he is required to maintain books of A/c’s and get it audited.

COMMON POINTS FOR 44AD AND 44ADA

1.

Deduction u/s 30-38 shall not be allowed. (Assume it deemed to be already applied)
2.

WDV is to be calculated considering notional depreciation every year.
3.

Partner’s remuneration & interest are not allowed from deemed PGBP.
4.

100% Advance Tax can be paid by 15Th March of P.Y.

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SECTION 44AE: PROFIT & GAINS OF TRANSPORTER ON PRESUMPTIVE BASIS

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If assesse is engaged in the business of plying, hiring, leasing such goods carriage the PGBP will be:

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Heavy good Vehicle: Rs. 1,000 per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month.

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Other Vehicle: Rs 7,500 for every month or part of a month.

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Notes:

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1.

The assessee can also declare a higher amount in his return of income. In such case, the latter will be considered to be his income.
2.

This section is applicable if assessee owns Max 10 vehicles. If assessee owns more than 10 vehicles at any time during the P.Y then this section shall not apply.
3.

Income calculated even vehicle not put to use but own by assessee.
4.

Partner’s remuneration, salary, interest etc. as per Section 40(b) shall be deductible while computing income u/s 44AE.
5.

Heavy goods vehicle means any goods carriage, the Gross Vehicle Weight of which exceeds 12,000 kilograms (12 tons).
6.

As per CBDT clarification we have to consider Gross Vehicle Weight (GMW) for calculating income however if GVW is not available then we have to consider unladen weight.
7.

Assessee opting for presumptive taxation are not required to maintain books of accounts as per Section 44AA or get them audited u/s 44AB. However, where an assessee wishes to declare income lesser than as computed u/s 44AE, he is required to mandatorily maintain books of accounts and get the same audited.
8.

Deduction u/s 30-38 shall not be allowed

9.

WDV is to be calculated considering notional depreciation every year.

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SECTION 43B : EXPNESES ALLOWABLE ON PAYMENT BASIS

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EXPNESES ALLOWABLE ON PAYMENT BASIS SECTION 43B

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Section 43B of the Income Tax Act is concerned with Profit and gains of business or profession. This provision states that assessee’s can claim certain payments as expenses; however, they can do so in the year it was paid not in the year it was incurred. The Following expenses (except point (h)) are allowed only if they are actually paid up to the due date of return filing as per Section 139(1).

(a)Any tax, Duties, Cess & Fees.
(b)Employer’s contribution towards Superannuation Provident Fund (SPF), Recognized Provident Fund (RPF), Approved Gratuity Fund, Approved Superannuation Fund, New Pension Scheme, any other fund as per law.
(c)Bonus or Commission to employees.
(d)Interest on loan to any Public Financial Institution, State Financial Corporation, State Industrial Investment Corporation, Scheduled Banks (Scheduled Banks include co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank).
(e)Leave encashment (Leave Salary) to employees.
(f)Any sum payable to the Indian Railways for use of Railway Assets.
(g)Any sum payable by the assessee to a micro or small enterprises beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development Act, 2016 (Added w.e.f. Assessment Year 24-25 by Finance Act, 2023).

Note: If payment (a to g) made after due date of return filing & payment (h) made after time limit of MSMED Act, then such expenses shall be allowed in the Year of Actual Payment.

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NOTES:

1.Where the interest payable on loans has been converted into loan or borrowing, it shall not be deemed that the interest is paid off. Interest shall be allowed as deduction in the Previous Year in which such installments are paid off.
2.If interest payable on loan is converted into debentures or any other instrument by which the liability to pay is deferred to a future date shall not be treated as actual payment.
3.Any payment made to Micro & Small enterprises allowed as deduction in current year if payment is made within the time allowed u/s 15 of MSMED Act otherwise allowed in the year of Actual Payment.
4.Time limit as per Section 15 of MSMED Act: Where any person purchases goods or services, from a micro or small enterprise, the payment shall be made before the date agreed upon between him and supplier in writing. In no case the period agreed upon between the supplier and the buyer in writing shall be more than 45 days. If, however, there is no such agreement, the payment shall be made within 15 days of acceptance or deemed acceptance of goods or services.

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Definition of Micro and Small Enterprises

The Definition of Micro and Small Enterprises as amended in Budget 2025 is as follows:

.

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Micro Enterprises

Small Enterprises

Investment in Plant and machinery or equipment’s

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Upto Rs. 2.5 Crores

.

Upto Rs. 25 Crores

Turnover

Upto Rs. 10 Crores

Upto Rs. 100 Crores

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Example 1: Kunal Ltd. purchased goods from Sharma Ltd. (a small enterprise as per MSME Act) for Rs. 15 lakhs on 2nd March 2025. As per written agreement payment is to be made upto 30th April 2025. However, payment is made as follows:

.

2,00,000 paid on 30th March 2025.

4,00,000 paid on 6th April 2025.

3,00,000 paid on 15th April 2025.

6,00,000 paid on 6th May 2025.

Solution:

Date of acceptance of goods is 2nd March 2025. As per agreement the due date was 30th April 2025, but as per MSMED Act in no case the period agreed upon between the supplier and the buyer in writing shall be more than 45 days. Hence, the payment is to be made on or before 16th April 2025 (i.e. the agreed date of payment or 45 days, whichever is earlier).

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Deduction will be available to Kunal Ltd. as Follows:

Amount

Payment Date

Due date as per MSMED Act

Payment made before due date?

Basis of Deduction

P.Y in which expense is allowed

2,00,000

30th April 2025

16th April 2025

Yes

Accrual

P.Y 24-25

4,00,000

6th April 2025

16th April 2025

Yes

Accrual

P.Y 24-25

3,00,000

15th April 2025

16th April 2025

Yes

Accrual

P.Y 24-25

6,00,000

6th May 2025

16th April 2025

No

Payment

P.Y 25-26

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Example 2: Suppose in example 1 if there is no agreement about the time of payment of goods.

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In case there is no agreement between the buyer and seller regarding payment of goods to seller registered under the MSMED Act as Micro or Small Enterprise then the payment shall be made within 15 days of acceptance or deemed acceptance of goods. In our case since no written agreement was made regarding payment of goods, the due date of payment as per MSMED Act is 17th March 2025 as the date of acceptance of goods is 2nd March 2025.

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Deduction will be available to Kunal Ltd. as Follows:

Amount

Payment Date

Due date as per MSMED Act

Payment made before due date?

Basis of Deduction

P.Y in which expense is allowed

2,00,000

30th April 2025

17th March 2025

No

Payment

P.Y 24-25

4,00,000

6th April 2025

17th March 2025

No

Payment

P.Y 25-26

3,00,000

15th April 2025

17th March 2025

No

Payment

P.Y 25-26

6,00,000

6th May 2025

17th March 2025

No

Payment

P.Y 25-26

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ACTUAL COST/ COST OF ACQUISITION OF ASSET ACQUIRED (SECTION 43(1))

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ACTUAL COST/ COST OF ACQUISITION OF ASSET ACQUIRED (SECTION 43(1))

ACTUAL COST AS PER SECTION 43(1)

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Particulars

Amount (in Rs.)

Cost of Asset (Purchase Price)

xxx

Add: Installation charges

xxx

Add: Transportation expenses for test

xxx

Add: Trial run/ Test run expenses

xxx

Add: Taxes & Duties (if ITC is not available)

xxx

Add: Interest on loan taken for acquisition of asset (upto the date of asset put to use)

.

xxx

.

xxx

Less: Amount received on sale of trial run product

xxx

Less: Subsidy/ Government Grants received for acquisition of assets

xxx

Actual Cost

xxx

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Note: If assessee occurs any expenses for acquisition of any asset & payment made to single person in a single day, otherwise than by an a/c payee cheque/ Demand Draft or through any other electronic clearing service exceeds Rs. 10,000, such expenditure shall not form part of actual cost of such asset.

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EXPLANATION TO SECTION 43(1): ACTUAL COST IN CERTAIN CASES

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S.NO

CASE

ACTUAL COST
1.

Asset previously used for Scientific Research brought into regular business

Actual Cost = NIL (because deduction is already claimed u/s 35).
2.

Stock converted into capital asset and used for business or profession

Fair market Value on the date of conversion.
3.

Asset acquired by way of gift/ will/ inheritance

Actual cost to the previous owner less depreciation already allowed to him.
4.

Asset acquired with an intention to claim higher depreciation

Amount determined by the Assessing Officer with the approval of Joint Commissioner (JC) (Normally AO takes Fair Market Value of such assets).
5.

Re-acquisition of asset sold

Lower of: –

i.Written down value at the time of sale.
ii.Reacquisition Cost.
6.

Asset Purchased & leased back to the same person

Written down value of the previous owner (Lessee).
7.

Building was used for other purpose now brought into business.

Original Cost

xxx

(-) Notional Dep.

xxx

Actual Cost

Xxx

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8.

Capital Asset transferred by holding company to 100% subsidiary company or 100% subsidiary company to holding company

Cost/ opening written down value to the transferor company.
9.

Transferred by Amalgamating company to Amalgamated company

Cost/ opening written down value to the amalgamating company.
10.

Transferred by Demerged company to Resulting company

Cost/ written down value (at the time of demerger) to demerged company.
11.

Asset acquired out of Borrowed Funds

Interest upto first put to use form part of Actual Cost.
12.

Gst, Custom duty, etc.

Duty in respect of which ITC claim not allowed forming part of actual cost.
13.

Government grant/ Subsidy

If related to any asset, then reduce from actual cost.
14.

Asset brought into India by Non Resident for use in his Business or Profession

Actual Cost

xxx

(-) Depreciation calculated at the rate in force as if the asset was used in India from date of acquisition

.

.

.

xxx

.
15.

Any capital asset acquired under corporatization of Recognized Stock Exchanges (AOP/ BOI to company)

Cost/ Written down value of AOP/ BOI
16.

Actual cost allowed as deduction u/s 35AD and capital asset transferred to non specified business after 8 Years from the year of acquisition or transfer by way of transaction referred in section 47

Actual cost of transferee shall always be Nil.

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Explanation 7 of Section 43(6): In cases where assessee has partly income from Business and partly from Agriculture, for the purpose of computing written down value, the depreciation shall be computed as if the entire income of the assessee is from PGBP. The depreciation so computed shall be deemed to have been “actually allowed” to the assessee.

Eg: Mr. Kamran engaged in Growing & Manufacturing of Tea in this case only 40% income is taxable under PGBP. If the turnover is Rs. 20 lakhs, the depreciation is Rs. 1 lakhs and other expenses are Rs. 4 lakhs, then the income would be Rs. 15 Lakhs. PGBP would be Rs. 6 lakhs (being 40% of Rs. 15 lakhs). As per earlier court decisions, only the deprecation “actually allowed” i.e. Rs. 40,000, being Rs. 40% of Rs. 1 Lakh, has to be deducted to arrive at the Written down value but as per this explanation total Rs.1 lakh shall be reduce to compute WDV.

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Example:

Sai Ltd has a block of assets carrying 15% rate of depreciation, whose written down value on 01.04.2024 was Rs. 40 lakhs. It Purchased another asset (second hand plant and machinery) of the same block on 01/11/2024 for Rs. 14.40 lakhs and put to use on same day. Sai Ltd. was amalgamated with Shirdi Ltd. with effect from 01.01.2025.

You are required to compute the depreciation allowable to sai ltd. & Shirdi ltd. for the previous year ended on 31.03.2025 assuming that the assets were transferred to Shirdi ltd at Rs. 60 lakhs.

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Statement of computation depreciation allowable to Sai Ltd. & Shirdi Ltd.

Particulars

Amount (in Rs.)

Written down value (WDV) as on 01.04.2023

40,00,000

Addition during the year (used for less than 180 days)

14,40,000

Total

54,40,000

Depreciation on Rs. 40,00,000 @ 15%

6,00,000

Deprecaition on Rs. 14,40,000 @ 7.5%

1,08,000

Total Depreciation for the year

7,08,000

Apportionment between two companies:

(a)Amalgamating company, Sai ltd.

6,00,000 * 275/366

1,08,000 * 61/152

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4,50,820

43,342

.

4,94,162
(a)Amalgamated company, Shirdi Ltd.

6,00,000 * 91/366

1,08,000 * 91/152

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1,49,180

64,658

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2,13,838

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Notes:

1.The aggregate deduction, in respect of depreciation allowable to the amalgamating company and the amalgamated company in the case of amalgamation shall not exceed in any case, the deduction calculated at the prescribed rates as if the amalgamation had not taken place. Such deductions shall be apportioned between the amalgamating company and the amalgamated company in the ratio of the number of days for which such assets were used by them.
2.The Price at which the assets were transferred, i.e. Rs. 60 lakhs has no implications in computing eligible depreciation.
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HOW TO CALCULATE DEPRECIATION

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HOW TO CALCULATE DEPRECIATION

Calculation of Depreciation (Block of assets/ WDV method)

Deprecation as per Written Down Value Method can be calculated as per the following formula:

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Particulars

Amount (in Rs.)

Opening Written Down Value (WDV) of block

xxx

Add: Actual cost of asset acquired during the Previous Year

• Put to use for 180 days or more (upto 3rd Oct)
• Put to use for less than 180 days (on or after 4th Oct)
• Acquired but not put to use

.

xxx

xxx

xxx

Less: Money Payable (selling price of asset)

xxx

Less: Written down value of assets transferred in slump sale (compute Written down value of asset assuming this is the only asset in block)

.

xxx

**Written Down Value of Block for the purpose of Depreciation

xxx

Less: Depreciation Actually Allowed

xxx

Closing Written Down Value of Block

xxx

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** Written down Value of Block of asset: –

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Asset Acquired but not put to use.

No Depreciation

Put to used for less than 180 days

Half rate of Depreciation

Balance Assets

Full rate of Depreciation

  

NOTES:

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1.

If asset is acquired during the current Previous Year and not put to use the depreciation shall not be allowed for such assets but that asset should be added to Block of assets.
2.

Actual Sale Price of asset shall be reduced and not the Fair Market Value of asset sold.
3.

If assessee transferred the building, then actual sales price shall be reduced and not the stamp duty value. However, if Section 50 gets attracted then Stamp Duty Value shall be considered for computation of capital gains.
4.

Money payable means sales price or insurance compensation in respect of asset sold, discarded, demolished, or destroyed during the Previous Year and the amount of Scrap Value.

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Proviso to Section 32(1):

Depreciation is restricted to 50% if asset is put to use for less than 180 days in the year of acquisition, restriction applies only in the year of acquisition.

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Year of Acquisition

Year of Put to use for less than 180 days

Depreciation Allowed

Rate

P.Y 24-25

P.Y 24-25

P.Y 24-25

Half Rate

P.Y 24-25

P.Y 25-26

P.Y 25-26

Full Rate

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Depreciation in case of Amalgamation/ Demerger/ Succession

In these cases, depreciation is calculated normally and after that it shall be distributed between Amalgamating Company/ Demerged Company/ Predecessor and Amalgamated Company/ Resulting Company/ Successor in the Ratio of the number of days for which assets were used by them.

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Succession means:

• Conversion of Firm/ Proprietorship into Company as per Section 47(xiii)/ (xiv).
• Conversion of company into LLP as per Section 47(xiiib).
• Any other succession other than death.

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SALE OF ASSET/ CAPITAL GAIN IN CASE OF DEPRECIABLE ASSETS (BLOCK OF ASSETS)

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PART A: Where a block of assets ceases to exist (All assets Transfer)

Sale Price of Asset

5,20,000

7

9,30,000

7

Particular

Rs.

No.

Rs.

No.

Opening WDV of Block

6,00,000

5

6,00,000

5

Add: Actual cost of asset acquired

.

2,00,000

.

2

.

2,00,000

.

2

.

8,00,000

7

8,00,000

7

Less: Sale Value of assets

(5,20,000)

7

(8,00,000)*

7

Capital loss

2,80,000

–

–

–

.

Asset

WDV

Depreciation

Capital Gain

No

No

No

Yes

Asset

WDV

Depreciation

Capital Gain

No

No

No

Yes

Computation of CG

Full Value of Consideration

Less: Cost of Acquisition

.

5,20,000

(8,00,000)

.

.

9,30,000

(8,00,000)

.

STCL/ STCG

(2,80,000)

.

1,30,000

.

.

* Block of Asset can be nil but can never be negative

NOTE: In case of Depreciable assets there is always Short term Capital Gain/ Short term Capital Loss.

.

PART B: Where some assets of block get transferred

Sale Price of Asset

9,10,000

4

6,20,000

4

Particular

Rs.

No.

Rs.

No.

Opening WDV of Block

6,00,000

5

6,00,000

5

Add: Actual cost of asset acquired

.

2,00,000

.

2

.

2,00,000

.

2

.

8,00,000

7

8,00,000

7

Less: Sale Value of assets

*(8,00,000)

4

(6,20,000)

4

Capital loss

–

3

1,80,000

3

.

Asset

WDV

Depreciation

Capital Gain

Yes

No

No

Yes

Asset

WDV

Depreciation

Capital Gain

Yes

Yes

Yes

No

Computation of CG

Full Value of Consideration

Less: Cost of Acquisition

.

9,10,000

(8,00,000)

.

.

Normal Depreciation is allowed

.

STCG

1,10,000

.

.

.

.

* Block of Asset can be nil but can never be negative

NOTE: In case of Depreciable assets there is always Short term Capital Gain/ Short term Capital Loss.

.

Depreciation for Power Units/ Sale of Assets/ SLM method/ Individual asset system

If power units follow Straight Line Method, then they are subject to Individual Asset System Profit & loss is calculated on every sale.

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Example:

Actual cost of Asset = Rs. 100

Rate of Depreciation = 10% SLM

In the 3rd Year if asset is sold for – a) Rs. 72, b) 89, c) 117, then compute the Capital Gain (if any) and Depreciation for all 3 years.

Depreciation and tax treatment will be as follows: –

.

.

A

B

C

Purchase Price of asset

100

100

100

Depreciation (1st year)

(10)

(10)

(10)

Balance at 1st year end

90

90

90

Depreciation (2nd Year)

(10)

(10)

(10)

Balance at 2nd Year end

80

80

80

Sales Value

72

89

117

Profit/ (loss)

(8)

9

37

NOTES:

A: In this case Terminal Depreciation of Rs. 8 is allowed as deduction in the Profit/ loss Debit side.

.

B: The balancing charge is taxable u/s 41(2) under the head of income from Business & Profession.

.

C: Rs. 20 (Upto Cost) balancing charge is taxable u/s 41(2) under the head of income from Business & Profession and Rs. 17 (Sales Price > Cost) Short Term Capital Gain is taxable u/s 50A.

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White and Purple Illustrative Finance Presentation

DEPRECIATION RATES FOR FY 2024-25

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DEPRECIATION RATES FOR F.Y 2024-25

What do you mean by Depreciation?

The concept of depreciation is used for the purpose of writing off the cost of an asset over its useful life. Depreciation is a mandatory deduction in the profit and loss account of an entity using depreciable assets and the act allows deductions either using the Straight Line method (SLM) or Written Down Value (WDV) method.

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The calculation of depreciation under the WDV method is widely used. However, in case the undertaking is engaged in power generation or its generation and distribution, there is an option to choose the straight line method.

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CONDITIONS TO CLAIM DEPRECIATION?

Conditions to claim depreciation:

i.Assets should be used for business/ profession purposes (active or passive).
ii.Assessee should be owner of such asset (wholly or partly).

.

Notes:

.

1.

Depreciation is allowed if assessee is beneficial owner.
2.

In case of lease, depreciation is always claimed by lessor whether it is financial lease or operating lease.
3.

In case of Hire Purchase, assessee gets the ownership only after the payment of last installment, but he can claim depreciation from beginning assuming assessee is owner from the beginning.
4.

Depreciation on asset partially owned by the assessee shall be allowed to him of his share in asset.
5.

In case of standby machinery and emergency spares, the depreciation shall be allowed even if they are ready for use & not put to use.
6.

Case law: ICDS ltd (2013) (SC): Depreciation shall be allowed to lessor even though the asset is registered in the name of lessee. As per lease agreements:

i.The lessor is the exclusive owner of vehicle at all points of time.
ii.The lessor is empowered to repossess the vehicle, in case the lessee committed default.
iii.The lessor had a right of inspection of the vehicle at all the times.
iv.At the end of the lease period, the lessee was obliged to return the vehicle to the lessor.

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It can be seen that proof of ownership lies in the lease agreement itself, which clearly points in the favour of the lessor.

 

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CLASSIFICATION OF DEPRECIABLE ASSETS

The depreciable asset can be classified into two categories:

.

1.

Intangible Assets.
2.

Tangible Assets

i.Building.
ii.Furniture.
iii.Plant & Machinery.

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RATES OF DEPRECIATION (WDV Method) (Block of Asset System)

The rate of depreciation as per WDV method is as follows:

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S.NO

ASSETS

Rate
1.

Buildings (include roads, bridges, wells and tubewells)

i.Residential use (except hotels)
ii.Other use
iii.Temporary or Wooden Structure

.

5%

10%

40%
2.

Furniture & Fittings (include electrical fittings like fans, wires, switches etc.)

.

10%
3.

Plant & Machinery (as per note 1)

Note 1
4.

Intangible Assets

25%

.

NOTE 1:

.

i.Motor Vehicles

15%
ii.Motor Vehicles (Acquired & put to use between 23.08.19 to 31.03.20)

30%
iii.Motor Vehicles used in Hire Business

30%
iv.Motor Vehicles used in Hire Business (Acquired & put to use between 23.08.19 to 31.03.20)

45%
v.Ships, Vessels, Speed Boats

20%
vi.Aero planes, Aero engines

40%
vii.Computer & Computer Software

40%
viii.Pollution Control Equipment

40%
ix.Windmills & its equipment installed before 01/04/14

15%
x.Windmills & its equipment installed after 01/04/14

40%
xi.Renewable Energy Devices (include E-Vehicles)

40%
xii.Oil Wells

15%
xiii.Books owned by assessee carrying on a profession being annual publication

100%
xiv.Books owned by assessee carrying on a profession not being annual publications

60%

.

.

.

NOTE 2:

.

1.

It is mandatory for all the assessee to claim depreciation.
2.

EPBAX & Mobile phones are not considered as computers as per Income Tax Act, hence depreciation will be levied @ 40%.
3.

Intangible assets includes know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature but other than goodwill of business and profession i.e. depreciation is not leviable on business and profession.
4.

Depreciation rate of computer accessories i.e. UPS, Printers, Scanners is also 40% similar to depreciation rates for computers.
5.

Depreciation is allowed only when the asset is actually put to use & not ready to use.
6.

As per Section 49(3) plant includes ships, vehicles, books, scientific apparatus & surgical equipment’s used for business or profession but does not include Tea bushes, livestock, building, furniture.

.

METHOD OF DEPRECIATION

There are two methods of depreciation only Written Down Value (WDV) and Straight Line Method (SLM) and can be opted by assessee as follows: –

.

TYPE OF ASSESSEE

DEPRECIATION METHOD

Business of Generation or Generation & Distribution of power

They have an option to follow straight line method or written down value method.

All other assessee’s

They have to follow only written down value method

.

SYSTEM OF DEPRECIATION

WDV METHOD: For Written Down Value method of depreciation Block of Asset System shall apply.

.

SLM METHOD: For Straight Line Method of depreciation Individual asset system shall apply (Power units).

.

Note 1: “Group of Assets” having same rate of depreciation within the same class of Assets; Block of Assets = Same rate + same class

.

Note 2: Depreciation calculated on Individual asset – Same as aacounts.

.

FREQUENTLY ASKED QUESTIONS

Q. Is it Mandatory to deduct depreciation for tax purposes?

A. Depreciation must be deducted compulsorily, regardless of whether the taxpayer has claimed it when computing their total income.

.

Q. Can depreciation be claimed on assets used partially for personal purposes?

A. Yes, Depreciation can be claimed on assets used partially for business purposes and partially for personal purposes. However, only the proportion of asset used for purpose of business can be claimed as deduction from total income.

.

Q. Are there any assets exempt from Depreciation?

A. Certain assets like Land, Goodwill and assets not used for business purposes are not eligible for depreciation under the Income Tax Act.

.

.

.

White and Black Simple Illustrative Finance Video

TAX RATES FOR CERTAIN LONG TERM CAPITAL GAINS (LTCG) (112A) & ITS COST OF ACQUISITION

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.

TAX RATES FOR CERTAIN LONG TERM CAPITAL GAINS (LTCG) (112A) & ITS COST OF ACQUISITION

Section 112A: TAX ON LONG TERM CAPITAL GAINS (LTCG) OF CERTAIN ASSETS

Section 112A was inserted by the Finance Act 2018 to tax long term capital gains from the sale of listed equity shares, units of equity oriented mutual funds and units of business trust. The tax rate of such shares is as follows: –

.

1.LONG TERM CAPITAL GAINS (LTCG) on transfer of equity shares or equity oriented units or units of business trust, in excess of Rs. 1,25,000 shall be taxable: –
a.@ 10% (in excess of Rs. 1,00,000) for any transfer which takes place before 23rd July, 2024 and
b.@ 12.5% for nay transfer which takes place on or after 23rd July, 2024 (Amended by Finance Act 24, w.e.f. 23rd July, 2024),

If the following conditions are satisfied:

• SECTURITIES TRANSACTION TAX (STT) paid on acquisition & transfer of Equity Shares.
• SECTURITIES TRANSACTION TAX (STT) paid on transfer of equity oriented units and units of business trust.

.

2.LONG TERM CAPITAL GAINS (LTCG) arising from transaction in recognized stock exchange located in an international financial service center (IFSC) would be taxable @ 10%/12.5% where the consideration in foreign currency even though SECTURITIES TRANSACTION TAX (STT) NOT PAID in respect of such transactions.

.

3.Deductions u/s VI-A & Rebate u/s 87A are not allowed against Capital Gain referred u/s 112A.

.

4.Central Government may notify certain modes of acquisition equity shares where payment of SECTURITIES TRANSACTION TAX (STT) on acquisition would not be applicable. Following are the cases where payment of SECTURITIES TRANSACTION TAX (STT) condition would not be applicable:

.

.

.

.

i.

Equity shares acquired before 1/10/2004 eligible for the benefit of Section 112A (as there was no SECTURITIES TRANSACTION TAX (STT) before 01/10/2004).
ii.

Equity shares acquired on or after 01/10/2004 eligible for benefit of Section 112A where SECTURITIES TRANSACTION TAX (STT) were not chargeable but in the following 3 conditions, benefit of Section 112A is not applicable: –

.

A.Where Acquisition of existing listed equity shares in a company whose equity shares are not frequently traded in a Recognized Stock Exchange of India is made through a Preferential Issue.

.

Provided above clause not applicable if acquisition: –

(i)Approved by Supreme Court (SC), High Court (HC), National Company Law Tribunal (NCLT), Securities & Exchange Board of India (SEBI) or Reserve Board of India (RBI).
(ii)By any Non resident as per Foreign direct investment guidelines.
(iii)By an Investment Fund or Qualified Institutional Buyer.

.

B.Acquisition of existing listed equity shares in a company, not entered through a Recognized Stock Exchange of India

.

Provided above clause not applicable if acquisition: –

(i)Acquisition through an issue of share by a company other than preferential issue.
(ii)Acquisition which has been approved Supreme Court (SC), High Court (HC), National Company Law Tribunal (NCLT), Securities & Exchange Board of India (SEBI) or Reserve Board of India (RBI).
(iii)Acquisition under Employee Stock option plan.
(iv)By any Non resident as per Foreign direct investment guidelines.
(v)Acquisition under SEBI (Substantial acquisition of Shares and Takeovers) Regulations, 2011.
(vi)Acquisitions from the Government.
(vii)Acquisition by mode of transfer referred to in Section 47 (exempt transfers) or Section 50B (Slump Sale) if the acquisition by the previous owner was not acquired as per specified mode.
(viii)By an Investment Fund or Qualified Institutional Buyer.

.

C.Acquisition during the intervening period starting from the date on which the company is delisted and ending on the date immediately before the date on which the company is again listed in Recognized Stock Exchanges.

 

COST OF ACQUISITION

In case of equity shares or unit of equity oriented fund or unit of Business Trust acquired before 01/02/2018 & transferred on or after 01/04/2018, Cost of acquisition will be

Higher of Step 1 & Step 2 where,

Step 1: Cost of acquisition

Step 2: Lower of Fair market value as on 31/01/2018* and Full value of consideration (FVOC)

.

Note: Indexation not available for computation of Capital Gains u/s 112A.

.

*Computation of Fair market value on 31/01/2018:

(i)

Listed Share/ Units on Recognized Stock Exchange on 31/01/2018:

.

Fair market value= Highest price quoted on 31/01/2018.

.

Note: If no trading on 31/01/2018 then the highest price of last trading session before 31/01/2018.
(ii)

Units/ Shares not listed on 31/01/2018:

.

In case of units: Net Asset Value (NAV) as on 31/01/2018.

.

In case of Share not listed on 31/01/2018 but listed on date of transfer: (A*B)/C

Where,

.

A= Cost of Acquisition

B= Cost inflation index for Financial Year 17-18 i.e. 272

C= Cost inflation index in which the share was first held by assessee or 01-02, whichever is later.

.

Equity Oriented Fund meaning: Fund set up under a scheme of a Mutual Fund or Unit Linked Insurance Policy to which exemption u/s 10(10D) does not apply:

• In a case where fund invests in the units of another fund which is traded on a Recognized Stock Exchange a minimum of 90% of its total proceeds in the unit of such other fund and such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a Recognized Stock Exchange; and
• In any other case, a minimum of 65% of the total proceeds of such fund invested in the equity shares of domestic companies listed on a Recognized Stock Exchange.
Orange and Brown Geometric Finance Company Presentation

EXEMPTION U/S 54G & 54GA OF INCOME TAX

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.

EXEMPTION U/S 54G & 54GA OF INCOME TAX

.

SECTION-54G

All the assessee can claim the benefits of exemption u/s 54G, the assessee can claim deduction as mentioned below:

.

Conditions for claiming exemption under Section 54G.

.

A.

Assessee

All the assessee can claim benefit of deduction u/s 54G.

B.

Transferred Asset

Transfer of plant or machinery or land or building for shifting industrial undertaking from urban area to rural area.

C.

Capital Gain on Transferred Asset

Asset can be long term as well as short term so both Short Term Capital Gain as well as Long Term Capital Gain is covered.

D.

Asset to be Acquired
(a)Purchase/ construction of new plant & machinery, land or building in such rural area, or,
(b)Shifting original assets to that area or,
(c)Incurring notified expense.

E.

Time limit for Purchase or reconstruction

Purchase: The specified assets shall be purchase 1 year before or 3 years after the date of transfer.

F.

Deposit Scheme

Capital Gain Account Scheme (Note 1).

G.

Amount of exemption
i.Capital Gain
ii.Cost of New Asset/ Deposit Amount

        (whichever is lower)

.

Note:

If cost of new asset exceeds Rs. 10 crores, then the amount exceeding Rs. 10 crores shall not be taken into account for the purpose of exemption (w.e.f. A.Y 24-25).

H.

Locking Period on Transfer of New Asset

If New Asset is transferred within 3 years from date of purchase or construction the exemption claimed earlier shall be withdrawn & Cost of Acquisition of new asset reduced by exempted capital gain while calculating capital gain on new asset.

I.

Case Laws

Fibre Boards (P) ltd. 2015

Advance given for purchase of land, building, plant & machinery amount to utilization of capital gain for purchase and acquisition of new assets, for claim of exemption u/s 54G.

.

.

SECTION-54GA

All the assessee can claim the benefits of exemption u/s 54GA, the assessee can claim deduction as mentioned below:

.

A.

Assessee

All the assessee can claim benefit of deduction u/s 54GA.

B.

Transferred Asset

Transfer of plant or machinery or land or building for shifting industrial undertaking from urban area to rural area.

C.

Capital Gain on Transferred Asset

Asset can be long term as well as short term so both Short Term Capital Gain as well as Long Term Capital Gain is covered.

D.

Asset to be Acquired
(a)Purchase/ construction of new as well as old plant & machinery, land or building in such rural area, or,
(b)Shifting original assets to that area or,
(c)Incurring notified expense.

E.

Time limit for Purchase or reconstruction

Purchase: The specified assets shall be purchase 1 year before or 3 years after the date of transfer.

F.

Deposit Scheme

Capital Gain Account Scheme (Note 1).

G.

Amount of exemption
i.Capital Gain
ii.Cost of New Asset/ Deposit Amount

(whichever is lower)

.

Note:

If cost of new asset exceeds Rs. 10 crores, then the amount exceeding Rs. 10 crores shall not be taken into account for the purpose of exemption (w.e.f. A.Y 24-25).

H.

Locking Period on Transfer of New Asset

If New Asset is transferred within 3 years from date of purchase or construction the exemption claimed earlier shall be withdrawn & Cost of Acquisition of new asset reduced by exempted capital gain while calculating capital gain on new asset.

I.

Case Laws

Fibre Boards (P) ltd. 2015

Advance given for purchase of land, building, plant & machinery amount to utilization of capital gain for purchase and acquisition of new assets, for claim of exemption u/s 54G.

.

.

NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54G & 54GA is not made before the date of filing of return, then the amount of capital gain has to be deposited under Capital Gain Account Scheme. The amount so deposited shall be deemed to cost of new asset.
1.

Time Limit: Such deposit in Capital Gain Account Scheme should be made before due date or actual date of filing the return, whichever is earlier.
1.

Unutilized Amount: If the amount deposited is not utilized for the specified purpose within the stipulated period, then the unutilized amount shall be charged as Capital Gain of the P.Y in which the specified period expires.

NOTE: CBDT clarifies that in the event of death of an individual before the stipulated period, the unutilized amount is not chargeable to tax in the hands of legal heir of deceased individual.

.

Example: Gama Ltd. located within the corporation limit decided in December 2024 to shift its industrial undertaking to non-urban areas. The company sold some of the assets and acquired new assets in the process of shifting the relevant details are as under:

.

Particulars

Land

Building

P&M

Furniture

Sale proceeds

8

18

16

3

Indexed cost of Acquisition

4

10

12

2

Cost of Acquisition

4

4

5

2

Cost of assets purchase in July 2025 for the purpose of business in new place

4

7

17

2

.

Compute Capital Gains for A.Y 25-26?

.

Computation of Capital Gain A.Y 25-26

Particulars

Land

Building

P&M

Furniture

Full Value of Consideration

8

18

16

3

Less: Transfer Expenses

–

–

–

–

Net Consideration

8

18

16

3

Less: COI/ ICOI

(4)

(4)

(5)

(2)

Capital Gain

4

14

11

1

.

54G EXEMPTION

Particulars

LTCG

STCG

Capital Gain for Exemption

4

25

Cost of New Assets

3

25

Taxable Capital Gain

1

Nil

.

Note 2: The Capital assets refereed in Section 54G are machinery or plant or machinery or land & building or any rights in the building or land. Capital gain arising on transfer of furniture does not qualify for exemption u/s 54G. No exemption is therefore available u/s 54G in respect of investment of Rs. 2 Lakhs in acquiring furniture.

Note 3: In case of Land, Normal Capital gain is calculated but in case of depreciated assets (Building, P&M, Furniture), Section 50 shall apply and as per Section 50 there is always STCG.

Note 4: Total exemption u/s 54G is Rs. 28 lakhs, the exemption should first be exhausted against short term capital gain as the rate of tax in case of short term capital gain is more than in case of long term capital gain.

.

The Taxable capital gain would be:

Long term capital gain = 1,00,000 taxable @ 12.5% u/s 112.

Short term capital gain = 1,00,000 taxable @ slab rates.

Green Modern Financial Management Presentation

EXEMPTION U/S 54F OF INCOME TAX

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.

EXEMPTION U/S 54F OF INCOME TAX

.

Under Section 54F of the Income Tax Act, an Individual or HUF selling an Urban Agricultural land can avail tax exemptions from Capital Gains if the capital gains are invested in purchase of Rural or Urban Agricultural Land.

Taxpayers such as partnership firms, LLP’s, companies or any other association or body cannot claim tax exemption under Section 54F.

.

Conditions for claiming exemption under Section 54F.

.

A.

Assessee

Only Individual or HUF can claim exemption under this section.

B.

Transferred Asset

Asset sold/ transferred during the previous year must be Long Term Capital Asset other than Residential House Property.

C.

Capital Gain on Transferred Asset

Asset must be classified as long term capital asset and the gain arising must be long term capital asset.

D.

Asset to be Acquired

New asset acquired must be one Residential House property in India only.

E.

Time limit for Purchase or reconstruction

Purchase: The Residential house property must be purchased 1 year before or 2 years after the date of transfer.

Construction: Complete the construction of Residential house property within 3 years from date of transfer.

F.

Deposit Scheme

Capital Gain Account Scheme (Note 1).

G.

Amount of exemption

(A*B)/C Where,

A= Long term Capital Gain.

B= Cost of New Asset/ Deposit amount.

.

Note:

If cost of new asset exceeds Rs. 10 crores, then the amount exceeding Rs. 10 crores shall not be taken into account for the purpose of exemption (w.e.f. A.Y 24-25).

H.

Lock in Period

If New Asset is transferred within 3 years from date of purchase or construction the exemption claimed earlier shall be withdrawn & shall be treated as Long Term Capital Gain.

I.

Case Laws

Ravinder Kumar Arora 2012 Delhi

Where a house property is registered in Joint names, the exemption u/s 54F can be allowed fully to the co-owner who has paid whole of the purchase consideration, and it will not be restricted to his share in house property.

.

Sambandam Udaykumar 2012 Karnataka

Exemption u/s 54F cannot be denied on the ground that the construction was not completed within 3 Years after the date on which transfer took place, on account of pendency of certain finishing work like flooring, electrical fittings, fittings of door shutter etc.

.

Gouli Mahadevappa 2013 Karnataka

Where the Stamp Duty Value u/s 50C has been adopted as Full Value of Consideration, the reinvestment made in acquiring a residential property, which is in excess of the actual net sale consideration, can be considered for the purpose of computation of exemption u/s 54F, irrespective of the source of fund of such reinvestment.

J.

Additional Conditions
1.On the date of transfer of Long term capital asset, assessee should not own more than one residential house property.
2.Should not purchase any other house property within 2 years or construct within 3 years after the date of transfer.

If the above conditions are not satisfied then exempt Capital Gain, taxable in Previous Year in which such other residential house is purchased/ constructed.

.

NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54F is not made before the date of filing of return, then the amount of capital gain has to be deposited under Capital Gain Account Scheme. The amount so deposited shall be deemed to cost of new asset.
2.

Time Limit: Such deposit in Capital Gain Account Scheme should be made before due date or actual date of filing the return, whichever is earlier.
3.

Unutilized Amount: If the amount deposited is not utilized for the specified purpose within the stipulated period, then the unutilized amount shall be charged as Capital Gain of the P.Y in which the specified period expires.

NOTE: CBDT clarifies that in the event of death of an individual before the stipulated period, the unutilized amount is not chargeable to tax in the hands of legal heir of deceased individual.

.

Example: Mr. Ramesh purchased a plot of land in Chennai in June 2005 for Rs. 48 lakhs. On 4th January 2024, the land was sold to Mr. Mukesh for Rs. 105 lakhs and the stamp duty value as on that day was Rs. 150 lakhs. During the Financial Year 2023-24 Mr. Ramesh earned business income of Rs. 25 lakhs.

He Acquired a new residential property for Rs. 130 lakhs by investing the entire sale consideration and business income.

Determine Total Income of Mr. Ramesh for A.Y 24-25

Financial Year

CII

2005-06

117

2023-24

348

.

Computation of total income of Mr. Ramesh for A.Y 24-25

Particulars

Rs. In Lakhs

Rs. In Lakhs

Business Income

.

25.00

Capital Gain

Full value of Consideration (Note 2)

.

150.00

.

Less: Indexed cost of acquisition (Note 3)

(142.77)

.

Less: Exempt u/s 54F (Note 4)

(6.26)

.

Long term capital gain

.

0.97

Total Income

.

25.97

.

Note 2: As per Section 50C, the full value of consideration would be higher of :

Particular

Amount in lakhs

110% of Consideration (110% * 105 lakhs)

115.5

Stamp duty Value

150

Full value of consideration (higher of above)

150

.

Note 3: Computation of indexed cost of Acquisition:

Particular

Amount in lakhs

Cost of Acquisition

48

Indexed Cost of Acquisition (48*348)/117

142.77

.

Note 4: When the capital gain is assessed on notional basis as per the provisions of Section 50C and the higher value i.e. stamp duty of Rs 150 lakhs under Section 50C has been adopted as Full value of Consideration, the entire amount of Rs. 130 lakhs reinvested in the residential house within the prescribed period should be considered for the purposes of exemption u/s 54F, irrespective of source of fund for such reinvestment.

Exemption u/s 54F = (7.23*130)/150 = 6.26 lakhs.

Blue White Modern Investment Presentation

EXEMPTION U/S 54EC OF INCOME TAX

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.

EXEMPTION U/S 54EC OF INCOME TAX

When a taxpayer (i.e. all assessee’s) sells long-term immoveable property (land or building or both), they have the option to avail capital gain exemption under Section 54EC by investing in certain Bonds.

Section 54EC bonds, also known as Capital gain bonds, are fixed income instruments which provide capital gain exemption under Section 54EC to the investors.

To be eligible for exemption under Section 54EC, the taxpayer must meet the following conditions:

.

Conditions for claiming exemption under Section 54EC.

.

A.

Assessee

All assesse can claim deductions under this Section including Individual, HUF’s, companies, LLP, firms and others.

B.

Transferred Asset

The asset being sold should be a Long Term Capital Asset, which includes land or building or both. The asset is considered as long term if the taxpayer has held it for a minimum of 24 months prior to the sale.

C.

Capital Gain on Transferred Asset

Asset should be long term only, but the capital gain can be short term capital gain as well as long term capital gain.

D.

Asset to be Acquired

Bonds redeemable after 5 Years issued by:

• National Highway Authority of India (NHAI)
• Rural Electrification Corporation Ltd. (RECL)
• Power Finance Corporation Ltd. (PFCL)
• Indian Railway Finance Corporation Ltd. (IRFCL).

Maximum Exemption limit being Rs. 50 Lakhs within prescribed time limit.

E.

Time limit for Purchase or reconstruction

Purchase: The assessee must purchase the capital gain bonds within 6 months from the date of transfer of original asset.

F.

Deposit Scheme

Capital Gain Account Scheme is not applicable under this section.

G.

Amount of exemption
i.Capital Gain
ii.Cost of New Asset

            (whichever is lower)

.

Note:

The exemption is available upto a maximum amount of Rs. 50 lakhs only (if the amount is invested within 6 months)

H.

Locking Period

If the new asset is transferred or converted into money within 5 Years from the date of acquisition, then exempt long term capital will be taxable in the year of transfer/ conversion.

.

NOTE:

If assessee takes any loan or advance on the security of bonds, he shall be deemed to have converted into money on the date on which such loan or advance is taken & Capital Gain exempted earlier shall be taxable.

I.

Case Laws

Hindustan Unilever Ltd 2010

If the assessee has made the payment for purchase of bonds within 6 months from the date of transfers, exemption u/s 54EC cannot be denied merely because the bond was allotted to the assessee after the expiry of six months period.

.

V.S. Dempo Company ltd. (2016)(SC)

Section 50 deems the capital gain as Short-Term Capital Gain, it does not change the nature of asset held. Section 54EC requires the nature of Capital Asset to be Long Term Capital Asset and not Long Term Capital Gain. It does not make a distinction between depreciable and non-depreciable assets. Hence, where a depreciable asset was held for period requiring for qualifying as Long Term Capital Asset, Assessee shall be eligible for exemption u/s 54EC irrespective of the fact that the resultant gain is Short Term Capital Gain.

.

Example: Mr. Rajat has an immoveable property which is sold at Rs. 70 lakhs in Financial Year 24-25 after a long term period of 42 months from the date of acquisition. The indexed cost of acquisition of the said property is Rs. 46 Lakhs and indexed cost of improvement of the said property is Rs. 10 Lakhs. Calculate the capital gain if: (i) Rs. 15 Lakhs invested in REC bonds with 6 months. (ii) Invested Rs 8 lakhs with 6 months and Rs 10 lakhs after 6 months in NHAI bonds?

.

Calculation of Capital Gain in case Rs. 15 Lakhs invested in REC bonds.

PARTICULARS

AMOUNT

Full Value of Consideration

70,00,000

Less: Transfer Expenses

Nil

Net Consideration

70,00,000

Less: Indexed Cost of Acquisition

46,00,000

Less: Indexed Cost of Improvement

10,00,000

Long Term Capital Gain

14,00,000

Less: Exemption u/s 54EC (NOTE 1)

14,00,000

Taxable Long Term Capital Gain

Nil

.

NOTE 1:

54EC EXEMPTION

Amount invested in REC bonds (within 6 months)

15,00,000

Capital Gain from sale of long term capital asset

14,00,000

54EC exemption lower of above

14,00,000

.

Calculation of Capital Gain in case Rs. 8 Lakhs & Rs. 10 lakhs invested in NHAI bonds.

PARTICULARS

AMOUNT

Full Value of Consideration

70,00,000

Less: Transfer Expenses

Nil

Net Consideration

70,00,000

Less: Indexed Cost of Acquisition

46,00,000

Less: Indexed Cost of Improvement

10,00,000

Long Term Capital Gain

14,00,000

Less: Exemption u/s 54EC (NOTE 2)

8,00,000

Taxable Long Term Capital Gain

6,00,000

.

NOTE 2: In the give case assessee invested Rs.10 lakhs invested in NHAI bonds after 6 months that means it will not be considered for exemption under Section 54EC.

54EC EXEMPTION

Amount invested in REC bonds (within 6 months)

8,00,000

Capital Gain from sale of long term capital asset

14,00,000

54EC exemption lower of above

8,00,000

.

In case if the capital gain bonds are converted into cash before the period of maturity (within 5 years from date of transfer of original asset), then the amount so invested on which tax exemption was claimed, shall be taxable as long term capital gain in the year of conversion.

For Example, in above case if the bonds are transferred before the maturity date, say in the Financial Year 2026-27, then Rs. 14 lakhs and Rs. 8 lakhs as the case may be shall be taxable as long term capital gain in the Financial Year 2026-27.

.

.

.

Cover

EXEMPTION U/S 54B OF INCOME TAX

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.

EXEMPTION U/S 54B OF INCOME TAX

.

Under Section 54B of the Income Tax Act, an Individual or HUF selling an Urban Agricultural land can avail tax exemptions from Capital Gains if the capital gains are invested in purchase of Rural or Urban Agricultural Land.

Taxpayers such as partnership firms, LLP’s, companies or any other association or body cannot claim tax exemption under Section 54B.

.

Conditions for claiming exemption under Section 54B.

.

A.

Assessee

Only Individual or HUF can claim exemption under this section.

B.

Transferred Asset

Asset sold/ transferred during the previous year must be a Urban Agricultural Land used by Individual or his Parents for agricultural purposes during the 2 years before transfer of such Agricultural Land.

C.

Capital Gain on Transferred Asset

Asset can be both short term as well as long term i.e Assessee can claim exemption against both short term as well as long term capital gain.

D.

Asset to be Acquired

New asset acquired must be Rural Agricultural land or Urban Agricultural land.

E.

Time limit for Purchase or reconstruction

Purchase: The Rural Agricultural land or Urban Agricultural land should be purchase within 2 years from the date of such transfers.

F.

Deposit Scheme

Capital Gain Account Scheme (Note 1).

G.

Amount of exemption
i.Capital Gain
ii.Cost of New Asset/ Deposit Amount

                 (whichever is lower)

.

Note:

If cost of new asset exceeds Rs. 10 crores, then the amount exceeding Rs. 10 crores shall not be taken into account for the purpose of exemption (w.e.f. A.Y 24-25).

H.

Locking Period on Transfer of New Asset

If New Asset is transferred within 3 years from date of purchase or construction the exemption claimed earlier shall be withdrawn & Cost of Acquisition of new asset reduced by exempted capital gain while calculating capital gain on new asset.

I.

Case Laws

Gurnam Singh 2010

Exemption u/s 54B cannot be denied solely on the ground that new agricultural land purchased is not wholly owned by the assessee, as the assessee’s son is a co-owner as per the sale deed.

J.

Notes
1.If assessee acquired new asset as per Rural Agriculture land & if he transfers that land within 3 Years period, then exemption claimed earlier shall not be withdrawn as Rural Agriculture land is not a Capital Asset.
2.Deduction u/s 54B can be for Short Term Capital Gain also. The condition is that land should be used by assessee or his parents for 2 years prior to the date of transfer.

.

NOTE 1: CAPITAL GAIN ACCOUNT SCHEME

1.

Amount: If investment u/s 54B is not made before the date of filing of return, then the amount of capital gain has to be deposited under Capital Gain Account Scheme. The amount so deposited shall be deemed to cost of new asset.
2.

Time Limit: Such deposit in Capital Gain Account Scheme should be made before due date or actual date of filing the return, whichever is earlier.
3.

Unutilized Amount: If the amount deposited is not utilized for the specified purpose within the stipulated period, then the unutilized amount shall be charged as Capital Gain of the P.Y in which the specified period expires.

NOTE: CBDT clarifies that in the event of death of an individual before the stipulated period, the unutilized amount is not chargeable to tax in the hands of legal heir of deceased individual.

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Example: Mr. Rajat Sold his Agriculture Land in April 2025 for Rs. 25,20,000. Since past 10 years the land was used for agriculture purpose. Long term Capital Gain arising on transfer of such land amounted to Rs. 8,40,000. In December 2025 he purchased another agriculture land worth Rs. 10,00,000. The new land was, however sold in April 2026 for Rs. 12,00,000. What will be the amount of taxable Capital Gains in the hands of Mr. Rajat for the Financial Year 2025-26 & 2026-27?

PART 1

Computation of Capital Gains for the Financial Year 2025-26

Particulars

Amount (in Rs.)

Long term capital gain arising on transfer of old land

8,40,000

Less: Exemptions u/s 54B (Note 2)

8,40,000

Taxable long term Capital Gain

Nil

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NOTE 2:

EXEMTION U/S 54 B WILL BE LOWER OF FOLLOWING

Amount of Capital Gain arising on transfer of agricultural land

8,40,000

Amount Invested in New Agricultural Land

10,00,000

Exemption u/s 54B (lower of above)

8,40,000

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PART 2:

Computation of Capital Gains for the Financial Year 2025-26

If a taxpayer purchases another agricultural land and claims exemption under Section 54B and subsequently he transfers the new agricultural land within a period of 3 years from the date of its acquisition, then the benefit granted earlier under Section 54B will be withdrawn. The computation will be as follows:

Particulars

Amount (in Rs.)

Full value of consideration (i.e. sales consideration of new agricultural land)

12,00,000

Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset

Nil

Net Consideration Received

12,00,000

Less: Cost of Acquisition (Note 3)

1,60,000

Short-term Capital Gains on sale of new agricultural land

10,40,000

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NOTE 3: If the agricultural land is sold before a period of 3 Years from the date of its purchase, then at the time of computation of Capital Gain arising on transfer of the new agricultural land, the amount of Capital Gain claimed as exempt under Section 54B will be deducted from the cost of acquisition of new agricultural land. Applying these provisions, the cost of acquisition of new agriculture land will be computed as follows:

Particulars

Amount (in Rs.)

Cost of Acquisition of new land

10,00,000

Less: Exemption claimed earlier under Section 54B

8,40,000

Cost of new land to be use while computing Capital Gain

1,60,000

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