Extension of time for acquiring new asset or depositing orinvesting amount ofcapital gains.
89
Irrespective of anything contained in sections 82, 83, 84, 85, and 86,––
- (a) if the transfer of the original asset mentioned in those sections is by way of compulsory acquisition under any law; and
- (b) if the compensation awarded for such acquisition is not received by the assessee on the date of transfer, then, the period available to him under those sections for acquisition of the new asset or investment or deposit of capital gain in specified bank or institution shall be reckoned from the date of receipt of compensation.
Explanation
Section Summary:
This section extends the time period for taxpayers to reinvest or deposit capital gains from the sale of an asset (referred to as the "original asset") when the asset is compulsorily acquired by the government or another authority under a law. The key point is that if the compensation for the acquisition is not received by the taxpayer on the date of transfer, the clock for reinvestment or deposit starts only from the date the compensation is actually received.
Key Changes:
- Prior Law: Under the previous law, the time period for reinvesting or depositing capital gains typically started from the date of transfer of the original asset, regardless of when the compensation was received.
- New Law: The new provision allows the taxpayer to calculate the reinvestment period from the date they actually receive the compensation, not the date of transfer. This is particularly relevant in cases of compulsory acquisition where compensation is delayed.
Practical Implications:
- Taxpayers with Compulsory Acquisition: Taxpayers whose assets are compulsorily acquired (e.g., land acquired for public projects) and who face delays in receiving compensation benefit from this provision. They now have more time to reinvest or deposit the capital gains to claim tax exemptions.
- Compliance Flexibility: This change reduces the pressure on taxpayers to reinvest or deposit capital gains before they even receive the compensation, making compliance more practical.
Critical Concepts:
- Compulsory Acquisition: This refers to the government or an authority taking over an asset (e.g., land, property) under a law, often for public purposes like infrastructure projects.
- Original Asset: The asset that is transferred (sold or acquired) and whose sale proceeds generate capital gains.
- New Asset: The asset purchased or invested in using the capital gains to claim tax exemptions under sections like 54, 54B, 54D, 54EC, or 54F of the Income Tax Act.
- Reinvestment Period: The time allowed to reinvest or deposit capital gains to qualify for tax exemptions. This period is now tied to the date of receipt of compensation, not the date of transfer.
Compliance Steps:
- Identify the Date of Compensation Receipt: Taxpayers must determine the exact date they receive the compensation for the compulsory acquisition.
- Calculate the Reinvestment Period: The period for reinvesting or depositing capital gains starts from the date of receipt of compensation, not the date of transfer.
- Reinvest or Deposit Within the Extended Period: Ensure that the new asset is acquired or the amount is deposited in specified banks or institutions within the extended time frame to claim tax exemptions.
Example:
- Scenario: A farmer’s land is compulsorily acquired by the government for a highway project on January 1, 2023. However, the compensation is delayed and received only on July 1, 2023.
- Application of Law: Under the new provision, the farmer has until July 1, 2024 (one year from the date of compensation receipt), to reinvest the capital gains in a new asset or deposit it in a specified bank to claim tax exemptions. Previously, the period would have started from January 1, 2023, leaving less time for reinvestment.
This section ensures fairness and practicality for taxpayers facing delays in receiving compensation due to compulsory acquisition.