If an assessee’s industrial land or building is compulsorily acquired and they reinvest the capital gain in new industrial premises within three years, the gain is not taxed as ordinary income.
When the reinvested amount exceeds the cost of the new asset, the excess is taxed under section 67 and the new asset’s cost is treated as zero for any future gain within three years. If the reinvested amount is equal to or less than the cost, no gain is taxed and the cost of the new asset is reduced by the amount of the gain.
If the gain is not fully used before filing the return, the unused portion must be deposited in a specified bank by the return due date, and that deposit is treated as part of the new asset’s cost. Any remaining undeployed deposit after three years is taxed under section 67, though the assessee may withdraw it as per the government scheme.
📜 Official text of the section +
84. (1) Where an assessee has—
( a) capital gains arising from the transfer by way of compulsory acquisition
under any law, of a capital asset being land or building or any right in
land or building, forming part of an industrial undertaking belonging to
him, which was being used by the assessee for the business of the said
undertaking in the two years immediately preceding the date of transfer
(original asset); and
( b) within three years after that date, purchased any other land or building or
any right in any other land or building or constructed any other building
for shifting or re-establishing the said undertaking or setting up another
industrial undertaking (new asset),
then, instead of the capital gain being charged to income-tax as income of the tax
year in which the transfer took place, it shall be dealt with as follows:—
( i) if the capital gains exceeds the cost of new asset, such excess shall be
charged under section 67, and for computing any capital gains arising
from the transfer of the new asset within three years of its purchase or
construction, the cost shall be nil; or
( ii) if the capital gains is equal to or less than the cost of new asset, no capital
gains shall be charged under section 67 and for computing capital gains
from the transfer of the new asset within three years of its purchase or
construction, the cost shall be reduced by the amount of the capital gains.
(2) If the capital gains referred to in sub-section (1) is not utilised by the assessee to
purchase the new asset before filing the return of income under section 263, then—
( a) the unutilised amount shall be deposited in a specified bank or institution
and utilised as per the scheme notified by the Central Government;
( b) such deposit shall be made before the filing of the return not later than
the due date applicable in the case of the assessee for filing the return
of income under section 263(1); and
( c) the proof of deposit shall be submitted along with such return.
(3) For the purposes of sub-section (1), the amount already utilised for purchas-
ing or constructing the new asset together with the deposited amount under sub-
section (2), shall be deemed to be the cost of the new asset.
(4) If the amount deposited under sub-section (2) is not fully utilised for the purchase
or construction of the new asset within the period specified in sub-section (1), then,—
( a) the unutilised amount shall be charged under section 67 as the income
of the tax year in which three years from the date of the transfer of the
original asset expires; and
( b) the assessee shall be entitled to withdraw such unutilised amount in
accordance with the scheme referred to in sub-section (2).
Capital gains not to be charged on investment in certain bonds.
Plain-language summary — not the official text. Refer to the bare Act and confirm with a professional for your specific case.