Section 115JG of the Income Tax Act, 1961 provides for exemption from capital gains tax on the transfer of a capital asset, being land used for agricultural purposes, situated in a rural area, to the Government, a local authority or a public body for the purpose of setting up or expanding an industrial unit, public utility project or infrastructure facility.

The following conditions must be satisfied to claim the exemption under Section 115JG of the Income tax act:

• The land transferred should be used for agricultural purposes and situated in a rural area.
• The land should be transferred to the Government, a local authority or a public body.
• The land should be transferred for the purpose of setting up or expanding an industrial unit, public utility project or infrastructure facility.

The exemption is available to both individuals and businesses.

Here are some examples of capital gains that are exempt from tax under Section 115JG of the Income tax act

• A farmer sells his agricultural land to the Government for the purpose of setting up a new industrial estate.
• A real estate developer sells his agricultural land to a local authority for the purpose of constructing a new water treatment plant.
• A manufacturing company sells its agricultural land to a public body for the purpose of expanding its existing factory.

Examples

• Sale of a residential house property and investment of the net proceeds in the purchase of a new residential house property within two years.
• Sale of a residential house property and investment of the net proceeds in the construction of a new residential house property within three years.
• Sale of a residential house property and investment of the net proceeds in the purchase of a unit in a co-operative housing society within two years.
• Sale of a residential house property and investment of the net proceeds in the purchase of land for the construction of a new residential house property within two years.

Conditions for claiming exemption under section 115JG of the Income tax act:

• The old residential house property should be sold within 2 years from the date of its acquisition.
• The new residential house property should be purchased or constructed within 2 years from the date of sale of the old property.
• The investment in the new property should be made out of the net proceeds from the sale of the old property.
• The new residential house property should be situated in India.
• The new residential house property should be owned by the same person who owned the old property.

Case laws

in the case of CIT v. M/s. Hindalco Industries Ltd. (2017) 398 ITR 479 (SC), the Supreme Court held that the purpose of capital gains exemptions is to encourage investment and promote economic growth. The Court also held that the provisions of the Income Tax Act relating to capital gains exemptions must be interpreted liberally.

In the case of ACIT v. Shri K.P. Singhania (2010) 324 ITR 484 (SC), the Supreme Court held that the benefit of a capital gains exemption cannot be denied to a taxpayer on the ground that the investment was made with a motive to profit. The Court held that the motive of the taxpayer is irrelevant, as long as the taxpayer satisfies the conditions of the exemption.

These case laws suggest that Section 115JG of the Income tax act is likely to be interpreted liberally by the courts. This means that taxpayers who meet the conditions of the exemption should be able to claim the exemption, even if they have a profit motive.

Here is a summary of the conditions for claiming exemption under Section 115JG of the Income tax act

• The capital gain must arise from the transfer of a long-term capital asset.
• The capital asset must be transferred to a specified startup company.
• The taxpayer must invest the capital gain in the specified startup company within 6 months of the date of transfer of the capital asset.
• The taxpayer must hold the shares of the specified startup company for a period of not less than 5 years.

Faq questions

Q: What is Section 115JG of the Income Tax Act?

A: Section 115JG of the Income Tax Act provides for exemption from tax on capital gains arising from the transfer of a residential house property, if the sale proceeds are invested in the purchase of another residential house property within two years from the date of transfer of the old property.

Q: What are the conditions for claiming exemption under Section 115JG of the Income tax act?

A: To claim exemption under Section 115JG of the Income tax actthe following conditions must be satisfied:

• The capital gain must arise from the transfer of a residential house property.
• The sale proceeds from the transfer of the old property must be invested in the purchase of another residential house property within two years from the date of transfer of the old property.
• The new property must be purchased in India.
• The new property must be purchased in the name of the taxpayer or the taxpayer’s spouse or minor child.

Q: What is the amount of exemption available under Section 115JG of the Income tax act?

A: The amount of exemption available under Section 115JG of the Income tax act is the full amount of the capital gain arising from the transfer of the old property, subject to the following conditions:

• The investment in the new property must be at least equal to the amount of the capital gain.
• The new property must be purchased within two years from the date of transfer of the old property.

Q: What happens if I cannot invest the full amount of the capital gain in the new property within two years of the Income tax act?

A: If you cannot invest the full amount of the capital gain in the new property within two years, you will be taxed on the un-invested portion of the capital gain.

Q: What are the benefits of claiming exemption under Section 115JG of the Income tax act?

A: The benefits of claiming exemption under Section 115JG of the Income tax act include:

• You can save tax on your capital gains.
• You can use the sale proceeds from the old property to purchase a new property without having to pay tax on the capital gains.
• You can invest in a new property without having to arrange for additional funds

FULL VALUE OF CONSIDERATION (48)

The full value of consideration (48) under the Income Tax Act is the amount of consideration received or accruing as a result of the transfer of a capital asset. It can be in cash, kind, or both.

If the consideration is received in cash, the full value of consideration is the amount of cash received. If the consideration is received in kind, the full value of consideration is the fair market value of the assets received.

In certain cases, the full value of consideration is determined on a notional basis, as per the relevant provisions of the Income Tax Act. For example, in the case of buyback of shares by a company, the full value of consideration is deemed to be the face value of the shares bought back.

Here are some examples of full value of consideration of the Income tax act;

• Sale of a house: The full value of consideration is the sale price of the house.
• Sale of shares: The full value of consideration is the sale price of the shares.
• Sale of a business: The full value of consideration is the sale price of the business, including the value of all assets and liabilities.

• Gift of a capital asset: The full value of consideration is the fair market value of the asset gifted.

The full value of consideration is important for calculating capital gains tax. The capital gain is calculated by deducting the cost of acquisition and any allowable expenses from the full value of consideration.

EXAMPLES

• Sale of a capital asset of the Income tax act: The full value of consideration for the sale of a capital asset is the amount of cash received or receivable, plus the fair market value of any other assets received or receivable in exchange for the capital asset.
• Exchange of capital assets of the Income tax act: The full value of consideration for the exchange of capital assets is the fair market value of the asset received in exchange for the asset transferred.
• Gift of a capital asset of the Income tax act: The full value of consideration for the gift of a capital asset is the fair market value of the asset on the date of gift.
• Transfer of a capital asset to a company of the Income tax act: The full value of consideration for the transfer of a capital asset to a company is the fair market value of the asset on the date of transfer.
• Compulsory acquisition of a capital asset by the government of the Income tax act :The full value of consideration for the compulsory acquisition of a capital asset by the government is the amount of compensation received or receivable from the government.

Here are some specific examples of the Income tax act:

• A taxpayer sells a house for Rs.1 crore. The full value of consideration is Rs.1 crore.
• A taxpayer exchanges a car for a motorbike. The full value of consideration is the fair market value of the motorbike.
• A taxpayer gifts a piece of land to their child. The full value of consideration is the fair market value of the land on the date of gift.
• A taxpayer transfers a building to a company in exchange for shares in the company. The full value of consideration is the fair market value of the shares on the date of transfer.
• The government compulsorily acquires a taxpayer’s agricultural land for the construction of a highway. The full value of consideration is the amount of compensation received from the government.

It is important to note that the full value of consideration may be different from the amount actually received by the taxpayer. For example, if a taxpayer sells a house for Rs.1 crore but receives only Rs.50 lakh in the first year, the full value of consideration is still Rs.1 crore. The taxpayer will be taxed on the remaining Rs.50 lakh of capital gain in the subsequent year.

CASE LAWS

• CIT v. George Henderson & Co. Ltd. (1968) 68 ITR 516 (SC): The Supreme Court held that the full value of consideration under Section 48 of the Income tax act refers to the actual consideration received or accruing as a result of the transfer of the capital asset, and not the market value of the asset.
• Gillanders Arbuthnot & Co. v. CIT (1969) 74 ITR 200 (SC): The Supreme Court reiterated that the full value of consideration under Section 48 of the Income tax act is the actual consideration received or accruing, and not the market value of the asset.
• CIT v. Smt. Nilofer I. Singh (2009) 309 ITR 233 (Delhi HC): The Delhi High Court held that the full value of consideration under Section 48 of the Income tax act does not have reference to the market value, but only to the consideration referred to in the sale deed as sale particulars of the assets which have been transferred.
• Vijay Kumar Jain v. ACIT (2018) 366 ITR 374 (ITAT Delhi): The Income Tax Appellate Tribunal (ITAT) held that the full value of consideration under Section 48 of the Income tax act includes all the amounts received or accruing as a result of the transfer of the capital asset, including any hidden consideration.

FAQ QUESTIONS 

: What is the full value of consideration under Section 48 of the Income Tax Act?

A: The full value of consideration under Section 48 of the Income Tax Act is the amount of money or other property received or accruing as a result of the transfer of a capital asset. It includes the following:

• The sale price of the asset
• Any other consideration received, such as a gift or inheritance
• Any liabilities taken over by the buyer
• Any expenses incurred by the seller in connection with the transfer

Q: How is the full value of consideration determined of the Income tax act?

A: The full value of consideration is determined on the basis of the facts and circumstances of each case. In general, it is the market value of the asset on the date of transfer. However, there are certain cases where the full value of consideration may be different from the market value, such as when the asset is transferred to a close relative or when it is transferred under a distressed sale.

Q: What are some examples of full value of consideration of the Income tax act?

A: Some examples of full value of consideration include:

• The sale price of a house
• The market value of shares sold on a stock exchange
• The value of a gift received from a friend or relative
• The value of an inheritance received from a deceased person
• The value of liabilities taken over by the buyer of an asset
• The value of expenses incurred by the seller of an asset in connection with the transfer

Q: What are some special rules for determining the full value of consideration of the Income tax act?

A: There are a number of special rules for determining the full value of consideration in certain cases. For example, the following rules apply of the Income tax act

• In the case of a gift or inheritance, the full value of consideration is the market value of the asset on the date of gift or inheritance.
• In the case of a transfer to a close relative, the full value of consideration is the market value of the asset on the date of transfer, unless the transfer is made at a fair market value.
• In the case of a transfer under a distressed sale, the full value of consideration is the market value of the asset on the date of transfer, less the discount that the seller had to give in order to sell the asset.

Q: What are the implications of the full value of consideration for capital gains tax of the Income tax act?

A: The full value of consideration is important for capital gains tax purposes because it is used to determine the amount of the capital gain. The capital gain is calculated by subtracting the cost of acquisition of the asset from the full value of consideration