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TMI BlogTreatment of capital gains arising on compulsory acquisition of lands and buildings in Clause 84 of the Income Tax Bill, 2025 vs. Section 54D of the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ularly in the context of industrial undertakings. The clause mirrors the objectives of Section 54D of the Income-tax Act, 1961, but introduces certain modifications to adapt to contemporary economic and tax environments. Understanding the nuances of Clause 84 is crucial for stakeholders, including businesses and tax practitioners, as it impacts capital gains tax liability and investment strategies. Objective and Purpose The primary objective of Clause 84 is to offer tax relief to taxpayers who face compulsory acquisition of their lands or buildings. This relief is contingent upon the reinvestment of the compensation received into similar assets, thereby facilitating the continuity of industrial operations. The legislative intent is to enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant under the new Bill. 3. Utilization and Deposit of Capital Gains Clause 84(2) addresses situations where capital gains are not immediately reinvested. It mandates the deposit of unutilized capital gains in a specified bank or institution by the due date for filing the return of income. This deposit must be utilized according to a scheme notified by the Central Government. This provision ensures that the tax deferral is contingent on the genuine intent to reinvest the capital gains, preventing misuse of the relief. The requirement for proof of deposit aligns with compliance and transparency objectives. 4. Deemed Cost of New Asset Sub-section (3) clarifies that the cost of the new asset includes both the amount already utilized f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4D of the Income-tax Act, 1961 Clause 84 of the Income Tax Bill, 2025, and Section 54D of the Income-tax Act, 1961, share similar objectives and mechanisms for deferring capital gains tax liability. Both provisions aim to facilitate the reinvestment of compensation from compulsory acquisitions into similar assets, promoting industrial continuity. However, Clause 84 introduces updated references and language to align with the new legislative framework. Additionally, the Bill's emphasis on compliance and transparency reflects contemporary tax policy priorities. While the core principles remain consistent, the procedural updates in Clause 84 enhance clarity and adaptability to current economic conditions. Conclusion Clause 84 of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the financial impact of such acquisitions on businesses, encouraging the re-establishment or expansion of industrial operations. By deferring capital gains tax, Section 54D supports economic stability and industrial development, aligning with broader policy objectives of fostering growth and investment. Detailed Analysis 1. Conditions for Exemption Section 54D(1) sets forth the conditions under which capital gains from compulsory acquisition are exempt from tax. The provision applies when an assessee's capital asset, forming part of an industrial undertaking, is compulsorily acquired, and the assessee reinvests the compensation in another land or building within three years. The reinvestment must be for shifting, re-establishing, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with unutilized deposited amounts. If the amount is not fully utilized within the specified period, it is charged u/s 45 as income of the previous year in which three years from the transfer date expires. Additionally, the assessee may withdraw the unused amount according to the notified scheme. This aspect underscores the conditional nature of the exemption, ensuring that tax relief is only granted for genuine reinvestment efforts. Practical Implications Section 54D has significant implications for businesses and individuals facing compulsory acquisition of industrial assets. The provision offers a mechanism to defer capital gains tax liability, thereby preserving capital for reinvestment. However, compliance with the conditions and ti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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