Exemption of long-term capital gains on investment in notified units of specified fund [New Section 54EE] :
Effective from: A.Y.2017-18
(i) Objective:
For incentivising the start-up ecosystem in India, the ‘start-up India Action Plan’ envisages establishment of a Fund of Funds which intends to raise ` 2,500 crores annually for four years to finance the start-ups.
(ii) Exemption of LTCG invested in units of specified fund: In order to achieve this objective, new section 54EE has been inserted to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units issued before 1st April, 2019 of such fund, as may be notified by the Central Government in this behalf. The lower of the capital gains or
the amount so invested would be exempt under section 54EE.
(iii) Quantum of Exemption:
|
Case |
Amount exempted |
| If amount invested in notified units of specified fund ≥ Capital gains | Entire capital gains is exempt |
| If amount invested in notified units of specified fund < Capital gains | Capital gains to the extent of cost of amount invested in notified units is exempt |
(iv) Time limit for investment:
The investment has to be made within 6 months after the date of transfer.
(v) Ceiling limit for investment in units of the specified fund:
The maximum investment in units of the specified fund in any financial year is ` 50 lakh. Further, the investment made by an assessee in the units of specified fund out of capital gains arising from the transfer of one or more capital assets, cannot exceed ` 50 lakh, whether the investment is made in the same financial year or subsequent financial year or partly in the same financial year and partly in the subsequent financial year.
(vi) Conditions for availing exemption:
(vii) Consequence of transfer of units before 3 years:
Where the units are transferred at any time within a period of three years from its acquisition, the capital gains, to the extent exempt earlier, would be chargeable as capital gains in the year of transfer.
(viii) Deemed transfer of notified units:
Further, if the assessee takes any loan or advance on the security of such units, he shall be deemed to have transferred such units on the date on which such loan or advance is taken.