Finance Bill 2016 has brought in many tax incentives for startup India vision of present government . One of the new benefit to startup is for solving the fund problems faced by startups by tweaking the provision under section 54GB of the I.T.Act. Earlier , readers were informed that a new provision section 54EE of the Income Tax Act for capital gains exemption on sale of long term capital asset and investment in startup was introduced . That was also intended for tackling fund problems of startups.
What is new amendment to section 54GB ?
Section 54GB provide exemption from tax on long term capital gains in respect of the gains arising on account of transfer of a residential property, if such capital gains are invested in subscription of shares of a company which qualifies to be a small or medium enterprise under
the
Micro,
Small and Medium Enterprises Act, 2006 subject to other conditions specified therein.
The Finance Bill 2016 has amended the provision u/s 54GB to provide that the investment in computers or computer software in case of technology driven start-ups so certified by the Inter-Ministerial Board
of
Certification notified by the Central Government in the official Gazette shall also be eligible to claim tax exemption.
So , if you desire to start a startup and your startup is technology driven , you can sell a residential house held for at least 36 months before the sale and invest the proceed in the startup. The government will exempt the gain on sale of such house by you under section 54GB
Conclusion on section 54GN amendment
- If you have technology driven startups , you can save on tax gains on sale of residential house which was held by you for at least 36 months before sale .
- You are allowed to invest in computers and software for your startups
Section 54GB as proposed is given below :
Capital gain on transfer of residential property not to be charged in certain cases
54GB. (1) Where,—
(i) the capital gain arises from the
transfer of a long-term capital asset, being a residential property (a
house or a plot of land), owned by the eligible assessee (herein
referred to as the assessee); and
(ii) the assessee, before the due date of furnishing of return of income under sub-section (1) of
section 139,
utilises the net consideration for subscription in the equity shares of
an eligible company (herein-referred to as the company); and
(iii) the company has, within one year from
the date of subscription in equity shares by the assessee, utilised this
amount for purchase of new asset,
then, instead of the capital gain being charged to
income-tax as the income of the previous year in which the transfer
takes place, it shall be dealt with in accordance with the following
provisions of this section, that is to say,—
(a) if the amount of the net consideration
is greater than the cost of the new asset, then, so much of the capital
gain as it bears to the whole of the capital gain the same proportion as
the cost of the new asset bears to the net consideration, shall not be
charged under
section 45 as the income of the previous year; or
(b) if the amount of the net consideration
is equal to or less than the cost of the new asset, the capital gain
shall not be charged under
section 45 as the income of the previous year.
(2) The amount of the net consideration, which has been
received by the company for issue of shares to the assessee, to the
extent it is not utilised by the company for the purchase of the new
asset before the due date of furnishing of the return of income by the
assessee under
section 139,
shall be deposited by the company, before the said due date in an
account in any such bank or institution as may be specified and shall be
utilised in accordance with any scheme which the Central Government
may, by notification in the Official Gazette, frame in this behalf and
the return furnished by the assessee shall be accompanied by proof of
such deposit having been made.
(3) For the purposes of sub-section (1), the
amount, if any, already utilised by the company for the purchase of the
new asset together with the amount deposited under sub-section (2) shall
be deemed to be the cost of the new asset:
Provided that if the amount so deposited is not
utilised, wholly or partly, for the purchase of the new asset within the
period specified in sub-section (1), then,—
(i) the amount by which—
(a) the amount of capital gain arising from the transfer of the residential property not charged under
section 45 on the basis of the cost of the new asset as provided in sub-section (1),
exceeds—
(b) the amount that would not have been
so charged had the amount actually utilised for the purchase of the new
asset within the period specified in sub-section (1) been the cost of
the new asset,
shall be charged under
section 45
as income of the assessee for the previous year in which the period of
one year from the date of the subscription in equity shares by the
assessee expires; and
(ii) the company shall be entitled to withdraw such amount in accordance with the scheme.
(4) If the equity shares of the company or the new asset
acquired by the company are sold or otherwise transferred within a
period of five years from the date of their acquisition, the amount of
capital gain arising from the transfer of the residential property not
charged under
section 45
as provided in sub-section (1) shall be deemed to be the income of the
assessee chargeable under the head "Capital gains" of the previous year
in which such equity shares or such new asset are sold or otherwise
transferred, in addition to taxability of gains, arising on account of
transfer of shares or of the new asset, in the hands of the assessee or
the company, as the case may be.
(5) The provisions of this section shall not apply to any
transfer of residential property made after the 31st day of March, 2017.
“Provided that in case of an investment in eligible start-up, the provisions of this sub-section
shall have the effect as if for the figures, letters and words “31st day of March, 2017”, the figures, 10
letters and words “31st day of March, 2019”
had
been substituted;”; [ added by Finance Bill 2016]
(6) For the purposes of this section,—
(a) "eligible assessee" means an individual or a Hindu undivided family;
(b) "eligible company" means a company which fulfils the following conditions, namely:—
(i) it is a company incorporated in India
during the period from the 1st day of April of the previous year
relevant to the assessment year in which the capital gain arises to the
due date of furnishing of return of income under sub-section (1) of
section 139 by the assessee;
(ii) it is engaged in the business of manufacture of an article or a thing;
(iii) it is a company in which the assessee
has more than fifty per cent share capital or more than fifty per cent
voting rights after the subscription in shares by the assessee; and
(iv) it is a company which qualifies to be a
small or medium enterprise under the Micro, Small and Medium
Enterprises Act, 2006 (27 of 2006);
(A) in sub-clause (ii),
after the words “an article or a thing”, the words “or in an eligible business”
shall be inserted;
15
(B) in sub-clause ( iv), after the words and figures “Micro, Small and Medium
Enterprises Act, 2006”, the words “or is an
eligible start-up”
shall be inserted;
[ added by Finance Bill 2016]
‘(ba) “eligible start-up” and “eligible business” shall have the meanings respectively assigned
to them in Explanation below sub-section (4)
of
section 80-IAC.’;
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(iii) after clause (d), the following proviso
shall be inserted, namely:—
“Provided that in the case of an eligible
start-up, being a technology
driven start-up so certified by the Inter-Ministerial Board of
Certification notified by the Central Government in the Official Gazette, the new asset shall include
computers or computer software.”. [ added by Finance Bill 2016]
(c) "net consideration" shall have the meaning assigned to it in the Explanation to
section 54F;
(d) "new asset" means new plant and machinery but does not include—
(i) any machinery or plant which, before
its installation by the assessee, was used either within or outside
India by any other person;
(ii) any machinery or plant installed in
any office premises or any residential accommodation, including
accommodation in the nature of a guest-house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) any machinery or plant, the whole of
the actual cost of which is allowed as a deduction (whether by way of
depreciation or otherwise) in computing the income chargeable under the
head "Profits and gains of business or profession" of any previous year.
Does invetment made in Souvereign Gold Bond of Govt of India ,in March,2016 out of advance received in Jan, 2016, relating to sale of a house property in April.2016, qualify for exemption under Sec.54 E.C.for Financial year 2015-16?
ReplyDeleteThe Govt has exempted tehe entire deposit along with interest on redemption after 8 years..
It is not notified for the purpose of capital gains exemption u/s 54EC or any other provision.
ReplyDelete