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Tax Planning through Investments

Tax Planning through Investments. EXEMPTIONS AVAILABLETO ALL CATEGORIES OF TAXPAYERS. SECTION 54D. Exemption from capital gain on compulsory acquisition of land and buildings. (A). TAXPAYER CATEGORY- SECTION 54D.

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Tax Planning through Investments

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  1. Tax Planning through Investments EXEMPTIONS AVAILABLETO ALL CATEGORIES OF TAXPAYERS CA. Rajat Mohan B.Com(H),ACA, ACS, DISA

  2. SECTION 54D Exemption from capital gain on compulsory acquisition of land and buildings MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  3. (A).TAXPAYER CATEGORY- SECTION 54D This exemption is available to all categories of taxpayers. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  4. (B).CONDITIONS SECTION 54 D 1.The capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset. 2. Original asset transferred criteria — Capital asset transferred is either land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  5. (B). CONDITIONS SECTION 54 D • 3. Use of original asset criteria — Such Capital asset, was being used by the assessee for the purposes of the business of the said industrial undertaking for the 2 years immediately preceding the date on which the transfer took place. 4. New asset acquired criteria — The assessee has within a period of 3 years after that date (date on which the transfer took place) purchased any other land or building or any right in any other land or building or constructed any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  6. (B). CONDITIONS SECTION 54 D 5. Non-transfer of new asset for 3 years criteria — New land, building or right so purchased or the building so constructed shall not be transferred within a period of 3 years from the date of its acquisition. However if this new land, building or right so purchased or the building so constructed is transferred within this period then for the purpose of computing capital gains, the cost of acquisition shall be reduced by the amount of the capital gain exempted under this section MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  7. (B). CONDITIONS SECTION 54 D 6. Capital Gains Accounts Scheme — The exemption is available of the amount, which is utilized by assessee in the purchase of new land, building or right so purchased or the building so constructed before the date of filing return of income[1] and the amount, which is invested, by the assessee in Capital Gains Accounts Scheme, 1988. In other words the amount which is not utilized by assessee in the purchase of new land, building or right so purchased or the building so constructed before the date of filing return of income, then it should be invested by the assessee in Capital Gains Accounts Scheme, 1988 latest by the date of filing return of income. The amount so invested by assessee in Capital Gains Accounts Scheme, 1988 shall be utilized towards the purchase of new land, building, or right or the construction of building. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  8. (B). CONDITIONS SECTION 54 D • However wherein the amount deposited in the Capital Gains Accounts Scheme, 1988 is not utilized (wholly or partly) for the purchase of new land, building or right or the construction of building within the period specified, then, the amount not so utilized shall be charged as the Long term Capital Gains/ Short Term Capital Gains (this depends on original capital gains) of the previous year in which the period of 3 years from the date of the transfer of the original asset expires. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  9. (C). AMOUNT OF EXEMPTION- SECTION 54D (i) If the amount of the capital gain is greater than the cost of the new land, building or right so purchased or the building so constructed -The cost of the new land, building or right so purchased or the building so constructed shall be exempt. (ii) If the amount of the capital gain is equal to or less than the cost of the new asset- The entire capital gain shall be exempt. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  10. (D). FORMULA FOR CALCULATING EXEMPTION SECTION 54D Exemption available shall be lower of the following: 1. Amount of Capital Gains; or 2. Amount invested as per the provisions of this section MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  11. SECTION 54EC EXEMPTION FROM CAPITAL GAIN ON INVESTMENTS MADE IN CERTAIN BONDS. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  12. (A). TAXPAYER CATEGORY-SECTION 54EC This exemption is available to all categories of taxpayers. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  13. (B).CONDITIONS - SECTION 54EC • Nature of Capital Gains on sale of original asset criteria — The capital gain arises from the transfer of any long-term capital asset. 2. The assessee has, within a period of 6 months after the date of such transfer, invested the whole or any part of capital gains. 3. New asset acquired criteria — Investment shall be made in the long-term specified asset. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  14. (B). CONDITIONS - SECTION 54EC 4. Non-transfer of new asset for 3 years criteria— The new long-term specified asset so acquired under this section shall not be transferred for a period of 3 years from the date of its acquisition. However where the long-term specified asset is transferred or converted into money at any time within a period of 3 years from the date of its acquisition, the amount of capital gains exempted under this section shall be deemed to be Long Term Capital Gains of the previous year in which the long-term specified asset is transferred or converted into money. In case assessee takes any loan or advance on the security of such new long-term specified asset, he shall be deemed to have converted such specified asset into money on the date on which such loan or advance is taken. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  15. (C). AMOUNTOF EXEMPTION SECTION 54EC • If the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset -The whole of such capital gain shall be exempt. (b) If the cost of the long-term specified asset Is less than the capital gain arising from the transfer of the original asset– Amountinvested in long-term specified asset shall be exempt. However, the investment made on or after 1 April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed Rs. 50 Lacs. The cost of specified assets, which is considered for the purpose this section, shall not be eligible for deduction under section 80C. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  16. (D).MEANING SECTION 54EC i) ‘Long-term specified asset’ means any bond, redeemable after 3 years and issued on or after 1 April, 2007 by: • National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988 or • Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  17. SECTION 54G EXEMPTION FROM EXEMPTION OF CAPITAL GAINS ON TRANSFER OF ASSETS IN CASES OF SHIFTING OF I NDUSTRIAL UNDERTAKING FROM URBAN AREA. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  18. (A).TAXPAYER CATEGORY- SECTION 54G This exemption is available to all categories of taxpayers. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  19. (B).CONDITIONS -SECTION 54G 1. Original asset transferred criteria — The capital gain arises from the transfer of a capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking. 2. Industrial undertaking is situated in an urban area. 3. Transfer of a capital asset has been effected in the course of, or in consequence of, the shifting of such industrial undertaking to any area (other than an urban area). MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  20. (B).CONDITIONS -SECTION 54G 4. New asset acquired criteria — The assessee has within a period of 1 year before or 3 years after the date on which the transfer took place: (a) Purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted; (b) Acquired building or land or constructed building for the purposes of his business in the said area ; (c) Shifted the original asset and transferred the establishment of such undertaking to such area; and (d) Incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  21. (B).CONDITIONS -SECTION 54G 5. Non-transfer of new asset for 3 years criteria— New specified assets so purchased, acquired, or constructed shall not be transferred within a period of 3 years from the date of its acquisition. However if these new specified assets are transferred within this period then for the purpose of computing capital gains for new asset, the cost of acquisition shall be reduced by the amount of the capital gain exempted under this section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  22. (B).CONDITIONS -SECTION 54G 6. Capital Gains Accounts Scheme — The exemption is available of the amount, which is utilized by assessee in the purchase of new specified assets before the date of filing return of income,and the amount, which is invested by the assessee in Capital Gains Accounts Scheme, 1988. In other words the amount which is not utilized by assessee in the purchase of new specified assets before the date of filing return of income, then it should be invested by the assessee in Capital Gains Accounts Scheme, 1988 latest by the date of filing return of income. The amount so invested by assessee in Capital Gains Accounts Scheme, 1988 shall be utilized towards the purchase or construction of new specified assets. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  23. (B).CONDITIONS -SECTION 54G • However wherein the amount deposited in the Capital Gains Accounts Scheme, 1988 is not utilized (wholly or partly) for the purchase of the new specified assets within the period specified, then, the amount not so utilized shall be charged as the Long term Capital Gains/Short Term Capital Gains (this depends on original capital gains) of the previous year in which the period of 3 years from the date of the transfer of the original asset expires. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  24. (C). AMOUNT OF EXEMPTION - SECTION 54G (I) If the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the specified purposes– The amount so invested and expensed for specified purposes shall be exempt. (ii) If the amount of the capital gain is equal to, or less than, the cost of the new asset - The entire capital gain shall be exempt. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  25. (C).AMOUNT OF EXEMPTION - SECTION 54G (i) If the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the specified purposes– The amount so invested and expensed for specified purposes shall be exempt. (ii)If the amount of the capital gain is equal to, or less than, the cost of the new asset - The entire capital gain shall be exempt. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  26. (D). FORMULA FOR CALCULATING EXEMPTION SECTION 54G Exemption available shall be lower of the following: i) Amount of Capital Gains; ii) Amount invested as per the provisions of this section MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  27. (E). MEANING – SECTION 54G ‘Urban area’ means any such area within the limits of a municipal corporation or municipality as the Central Government may, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, by general or special order, declare to be an urban area. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  28. SECTION 54GA EXEMPTION FROM CAPITAL GAINS ON TRANSFER OF ASSETS IN CASES OF SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA TO ANY SPECIAL ECONOMIC ZONE. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  29. (A).TAXPAYER CATEGORY-SECTION 54GA This exemption is available to all categories of taxpayers MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  30. (B). CONDITIONS- SECTION 54GA • Original asset transferred criteria— The capital gain arises from the transfer of a capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking. 2. Industrial undertaking is situated in an urban area. 3. Transfer of a capital asset has been effected in the course of, or in consequence of, the shifting of such industrial undertaking to any Special Economic Zone (whether developed in any urban area or any other area). MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  31. (B). CONDITIONS- SECTION 54GA 4. New asset acquired criteria — The assessee has within a period of 1 year before or 3 years after the date on which the transfer took place: (a) Purchased machinery or plant for the purposes of business of the industrial undertaking in the special economic zone to which the said undertaking is shifted; (b) Acquired building or land or constructed building for the purposes of his business in the special economic zone; (c) Shifted the original asset and transferred the establishment of such undertaking to the special economic zone; and (d) Incurred expenses on such other purposes as may be specified in a scheme framed by the Central Government for the purposes of this section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  32. (B). CONDITIONS- SECTION 54GA 5. Non-transfer of new asset for 3 years criteria — New specified assetsso purchased, acquired, or constructed shall not be transferred within a period of 3 years from the date of its acquisition. However if these new specified assets are transferred within this period then for the purpose of computing capital gains for new asset, the cost of acquisition shall be reduced by the amount of the capital gain exempted under this section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  33. (B). CONDITIONS- SECTION 54GA 6. Capital Gains Accounts Scheme — The exemption is available of the amount, which is utilized by assessee in the purchase of new specified assets before the date of filing return of income, and the amount, which is invested by the assessee in Capital Gains Accounts Scheme 1988. In other words the amount which is not utilized by assessee in the purchase of new specified assets before the date of filing return of income, then it should be invested by the assessee in Capital Gains Accounts Scheme, 1988 latest by the date of filing return of income. The amount so invested by assessee in Capital Gains Accounts Scheme, 1988 shall be utilized towards the purchase or construction of new asset. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  34. (B). CONDITIONS- SECTION 54GA However wherein the amount deposited in the Capital Gains Accounts Scheme, 1988 is not utilized (wholly or partly) for the purchase of the new specified assets within the period specified, then, the amount not so utilized shall be charged as the Long term Capital Gains/ Short Term Capital Gains (this depends on original capital gains) of the previous year in which the period of 3 years from the date of the transfer of the original asset expires MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  35. (C).AMOUNT OF EXEMPTION-SECTION 54GA • (i) If the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the specified purposes– The amount so invested and expensed for specified purposes shall be exempt. • (ii) If the amount of the capital gain is equal to, or less than, the cost of the new asset - The entire capital gain shall be exempt MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  36. (D). FORMULA FOR CALCULATING EXEMPTION- SECTION 54GA Exemption available shall be lower of the following: 1. Amount of capital gains; or 2. Amount invested as per the provisions of this section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  37. (E). MEANING – SECTION 54 GA i) “Special Economic Zone” shall have the meaning assigned to it in clause (za) of section 2 of the Special Economic Zones Act, 2005. ii) “Urban area” means any such area within the limits of a municipal corporation or municipality as the Central Government may, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, by general or special order, declare to be an urban area for the purposes of this sub-section. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  38. (F). STRUCTURING TAX- SECTION 54GA • There is no stipulation in act, rules, notification or circular that new asset so purchased cannot be mortgaged. In other words, loan can be taken on the security of such new asset. • There is no stipulation in act, rules any notification or circular that new asset so purchased cannot be leased. In other words new asset so purchased can be leased. However this step might require due planning and structuring of the deal in the light of separate provisions in financial lease and operating lease. This may involve litigation also. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  39. (F). STRUCTURING TAX- SECTION 54GA • New asset so purchased cannot be transferred for a period of 3 years. However we can use Section 47 and actually transfer the new asset without there being any capital gains. • There is no stipulation in act, rules, notification or circular that new asset is to be purchased from own funds of assessee or from the sale proceeds of original asset. Even if an assessee borrows required funds and satisfies other conditions relating to investment in specified assets, he is entitled to exemption. MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

  40. THANKYOU Your comments and suggestions are of utmost importance and are always welcomed. CA. Rajat Mohan B.Com(H), ACA, ACS, DISA MOHAN AGGARWAL & ASSOCIATES Chartered Accountants Head Office F-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005 Office Phone: 011-23672609 / 23535809 Branch Office 18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026 office Phone: 011-4732696/97 Website: www.delhicamohan.com E-mail: rajat.mohan@icai.org

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