Section 54E of Income Tax Act "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 long-term capital asset 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 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 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 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 net consideration shall not be charged
under section 45:
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:
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 or the
31st day of March, 1992, whichever is earlier.
Explanation 1.-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, where
the investment in such shares is made before the 1st day of
March, 1978;
(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);
(b) in a case where the original asset is transferred after
the 28th day of February, 1979 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;
(c) in a case where the original asset is transferred after
the 28th day of February, 1983 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;
(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;
(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.
Explanation 2.-"Eligible issue of capital" shall have the
meaning assigned to it in sub-section (3) of section 80CC.
Explanation 3.-An assessee shall not be deemed to have
invested the 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.
Explanation4.-"Cost", in relation to any new asset, being a
deposit referred to in sub-clause (vi) of clause (a) of
Explanation 1, means the amount of such deposit.
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.
(1A) Where the assessee deposits after the 27th day of
April, 1978, the whole or any part of the net consideration
in respect of the original asset in any new asset, being a
deposit referred to in 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 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 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.
(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
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.
(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
long-term capital assets of the previous year in which the
new asset is transferred or converted (otherwise than by
transfer) into money.
Explanation 1.-Where the assessee deposits after the 27th
day of April, 1978, the whole or any part of the net
consideration in respect of the original asset in any new
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.
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.
(3) Where the cost of the equity shares referred to in
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), a deduction
with reference to such cost shall not be allowed under
section 80CC.