May 2023

Power of Principal Commissioner or Commissioner to grant immunity from prosecution (1) A person may make an application to the Principal Commissioner or Commissioner for granting immunity from prosecution, if he has made an application for settlement under section 245C and the proceedings for settlement have abated under section 245HA. (2) The application to the Principal Commissioner or Commissioner under sub-section (1) shall not be made after institution of the prosecution proceedings after abatement. (3) The Principal Commissioner or Commissioner may, subject to such conditions as he may think fit to impose, grant to the person immunity from prosecution for any offence under this Act, if he is satisfied that the person has, after the abatement, co-operated with the income-tax authority in the proceedings before him and has made a full and true disclosure of his income and the manner in which such income has been derived : Provided that where the application for settlement under section 245C had been made before the 1st day of June, 2007, the Principal Commissioner or Commissioner may grant immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force. (4) The immunity granted to a person under sub-section (3) shall stand withdrawn, if such person fails to comply with any condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted. (5) The immunity granted to a person under sub-section (3) may, at any time, be withdrawn by the Principal Commissioner or Commissioner, if he is satisfied that such person had, in the course of any proceedings, after abatement, concealed any particulars material to the assessment from the income-tax authority or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the proceedings.

Punishment not to be imposed in certain cases Notwithstanding anything contained in the provisions of section 276A, section 276AB, or section 276B, 69-70[or section 276BB] no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure.

Introduction As the saying goes, “charity begins at home.” Donating to charitable organizations not only makes us feel good but also helps those in need. But did you know that you can also save taxes while making charitable donations? Yes, you read that right! The Income Tax Act of India has a provision under Section 80G that allows taxpayers to claim deductions on their taxable income for donations made to certain charitable institutions. In this blog, we will discuss everything you need to know about the 80G deduction, including its qualifying limits, donations eligible for deduction, and much more. So, let’s get started! Section 80G Deduction Section 80G of the Income Tax Act, 1961, provides for deductions to taxpayers who make donations to specified charitable institutions. The deduction is available to individuals, Hindu Undivided Families (HUFs), companies, and firms. However, donations made in cash exceeding Rs. 2,000 are not eligible for a deduction under this section. The deduction is available to taxpayers who have made donations to institutions or funds that have been approved by the Government of India. The institutions or funds should have a valid 80G registration certificate, and the donation should be made in the form of a cheque, demand draft, or any other banking channels Qualifying Limit for Section 80G Deduction The qualifying limit for donations made under Section 80G varies depending on the nature of the institution or fund. Donations made to certain institutions are eligible for a 100% deduction without any qualifying limit, while others are eligible for a 50% deduction without any qualifying limit. Some institutions also have a qualifying limit for 100% or 50% deductions. Donations Eligible for Income Tax Deduction under Section 80G Not all donations made to charitable institutions are eligible for deductions under Section 80G. The following are the donations that qualify for deductions: Donations made to specified relief funds and charitable institutions such as the Prime Minister’s National Relief Fund, the National Defense Fund, the Chief Minister’s Relief Fund, and the State Relief Fund, among others. Donations made to institutions involved in promoting scientific research or social welfare, such as universities and colleges approved by the University Grants Commission (UGC) or any government authority. Donations made to political parties registered under Section 29A of the Representation of the People Act, 1951. Donations made for the renovation or maintenance of notified temples, mosques, churches, gurudwaras, or any other places of worship. Donations made to certain funds set up by the Central Government and notified by it in this behalf. 100% Deductible without Qualifying Limit Donations made to certain institutions or funds are eligible for a 100% deduction without any qualifying limit. These include: Donations made to the National Defense Fund, the Prime Minister’s National Relief Fund, the Prime Minister’s Armenia Earthquake Relief Fund, the Africa (Public Contributions – India) Fund, and the National Foundation for Communal Harmony. Donations made to any approved university or educational institution of national eminence. Donations made to the Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district. Donations made to the Fund for Technology Development and Application. Donations made to the National Blood Transfusion Council Donations made to the Swachh Bharat Kosh set up by the Central Government. Donations made to the Clean Ganga Fund set up by the Central Government. 50% Deductible without Qualifying Limit Donations made to certain institutions or funds are eligible for a 50% deduction without any qualifying limit. These include: Donations made to the Jawaharlal Nehru Memorial Fund. Donations made to the Indira Gandhi Memorial Trust. Donations made to the Rajiv Gandhi Foundation. Donations made to the National Children’s Fund. Donations made to the Prime Minister’s Drought Relief Fund. 100% Deductible Subject to Qualifying Limit Donations made to certain institutions or funds are eligible for a 100% deduction, subject to a qualifying limit. The qualifying limit is 10% of the gross total income for individual taxpayers and 5% of the gross total income for corporate taxpayers. These include: Donations made to any approved research association engaged in scientific research. Donations made to any approved association or institution that undertakes or carries out any program of rural development. Donations made to any approved association or institution that undertakes or carries out any program of rural development 50% Deductible Subject to Qualifying Limit Donations made to certain institutions or funds are eligible for a 50% deduction, subject to a qualifying limit. The qualifying limit is 10% of the gross total income for individual taxpayers and 5% of the gross total income for corporate taxpayers. These include: Donations made to any approved charitable institution or trust that is established for the relief of poverty or distress. Donations made to any approved charitable institution or trust that is established for the promotion of education or any other object of general public utility. FAQs Q. Can I claim a deduction for donations made in cash? A. No, donations made in cash exceeding Rs. 2,000 are not eligible for a deduction under Section 80G. Q. Can I claim a deduction for donations made to any charitable institution? A. No, only donations made to specified institutions or funds that have been approved by the Government of India are eligible for deductions under Section 80G. Q. Is there any limit on the amount of donation eligible for deduction under Section 80G? A. Yes, the limit varies depending on the nature of the institution or fund. Some institutions have a qualifying limit for 100% or 50% deductions, while others are eligible for a 100% deduction without any qualifying limit. Q. Can I claim a deduction for donations made to political parties? A. Yes, donations made to political parties registered under Section 29A of the Representation of the People Act, 1951, are eligible for deductions under Section 80G. Conclusion The 80G deduction is a great way to support charitable causes while also saving taxes. It is essential to keep in mind the qualifying limits and eligible institutions while making donations to

Punishment for second and subsequent offences If any person convicted of an offence under section 276B 69-70[or section 276BB] or sub-section (1) of section 276C or section 276CC or section 276DD or section 276E or section 277 or section 278 is again convicted of an offence under any of the aforesaid provisions, he shall be punishable for the second and for every subsequent offence with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine.

Capital gain on transfer of residential property not to be charged in certain cases (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: Provided that in case of a new asset, being computer or computer software, acquired by an eligible start-up referred to in the proviso to clause (d) of sub-section (6), the provisions of this sub-section shall have effect as if for the words “five years”, the words “three years” had been substituted. (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, letters and words “31st day of March, 18[2022]” had been substituted. (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 or in an eligible business; (iii) it is a company in which the assessee has more than twenty-five per cent share capital or more than twenty-five 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) or is an eligible start-up;  (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;  (c) “net consideration” shall have the meaning assigned to it

Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area to any Special Economic Zone (1) Notwithstanding anything contained in section 54G, where 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 situate in an urban area, 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 and the assessee has within a period of one year before or three 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, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall, subject to the provisions of sub-section (2), be dealt with in accordance with the following provisions of this section, that is to say,—  (i) if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) (such cost and expenses being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be Nil; or  (ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be charged under section 45, and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be reduced by the amount of the capital gain. Explanation.—In this sub-section,—  (a) “Special Economic Zone” shall have the meaning assigned to it in clause (za) of section 2 of the Special Economic Zones Act, 2005;  (b) “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. (2) The amount of capital gain which is not appropriated by the assessee towards the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for all or any of the purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for all or any of the aforesaid purposes together with the amount so deposited shall be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,—  (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and  (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area (1) Subject to the provisions of sub-section (2), where 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 situate in an urban area, effected in the course of, or in consequence of, the shifting of such industrial undertaking (hereafter in this section referred to as the original asset) to any area (other than an urban area) and the assessee has within a period of one year before or three 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, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—  (i) if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) (such cost and expenses being hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be nil ; or  (ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its being purchased, acquired, constructed or transferred, as the case may be, the cost shall be reduced by the amount of the capital gain. Explanation.—In this sub-section, “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. (2) The amount of capital gain which is not appropriated by the assessee towards the cost and expenses incurred in relation to all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for all or any of the purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for all or any of the purposes aforesaid together with the amount, so deposited shall be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly for all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,—  (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and  (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—  (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;  (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as 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: Provided that nothing contained in this sub-section shall apply where—  (a) the assessee,—    (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or   (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or  (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and  (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”. Following second proviso shall be inserted after the existing proviso to sub-section (1) of section 54F by the Finance Act, 2023, w.e.f. 1-4-2024: Provided further that where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of this sub-section. Explanation.—For the purposes of this section,— “net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall 17[, subject to the second proviso to sub-section (1)] be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction 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 original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds   (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,

Capital gain not to be charged on investment in units of a specified fund (1) Where the capital gain arises from the transfer of a long-term capital asset (herein in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, namely:—  (a) 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 not be charged under section 45;  (b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45: Provided that the investment made on or after the 1st day of April, 2016, in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees: Provided further that the investment made by an assessee in the long-term specified asset, from capital gains arising from the transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees. (2) Where the long-term specified asset is transferred by the assessee at any time within a period of three years from the date of its acquisition, the amount of capital gains arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income chargeable under the head “Capital gains” relating to long-term capital asset of the previous year in which the long-term specified asset is transferred. Explanation 1.—In a case where the original asset is transferred and the assessee invests the whole or any part of the capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have transferred such specified asset on the date on which such loan or advance is taken. Explanation 2.—For the purposes of this section,—  (a) “cost”, in relation to any long-term specified asset, means the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset;  (b) “long-term specified asset” means a unit or units, issued before the 1st day of April, 2019, of such fund as may be notified by the Central Government in this behalf.

Capital gain on transfer of certain listed securities or unit not to be charged in certain cases (1) Where the capital gain arises from the transfer before the 1st day of April, 2006, of a long-term capital asset, being listed securities or unit (the capital asset so transferred being hereafter in this section referred to as the original asset), and the assessee has, within a period of six months after the date of such transfer, invested the whole or any part of the capital gain in acquiring equity shares forming part of an eligible issue of capital (such equity shares being hereafter in this section referred to as the specified equity shares), the said capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—  (a) if the cost of the specified equity shares is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;  (b) if the cost of the specified equity shares is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the specified equity shares acquired bears to the whole of the capital gain shall not be charged under section 45. Explanation.—For the purposes of this sub-section,—   (i) “eligible issue of capital” means an issue of equity shares which satisfies the following conditions, namely:—   (a) the issue is made by a public company formed and registered in India;   (b) the shares forming part of the issue are offered for subscription to the public;  (ii) “listed securities” shall have the same meaning as in clause (a) of the Explanation to sub-section (1) of section 112; (iii) “unit” shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB. (2) Where the specified equity shares are sold or otherwise transferred within a period of one year from the date of their acquisition, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such specified equity shares as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be the income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such equity shares are sold or otherwise transferred. (3) Where the cost of the specified equity shares has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),—  (a) 16[***]  (b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006. Understanding Section 54ED of the Income Tax Act 1961: A Guide to Capital Gains Exemption on Investment in Eligible Equity Shares Key Takeaways: Potential Exemption from Capital Gains Tax: Section 54ED offers a potential exemption from capital gains tax on the transfer of certain long-term capital assets, provided the gains are reinvested in eligible equity shares. Applicability: Applicable to transfers of listed securities or units occurring before April 1, 2006. Eligible Investments: The reinvested amount must be used to acquire equity shares in an “eligible issue of capital,” defined as a public issue of equity shares by a company registered in India and offered for subscription to the public. Conditions for Exemption: Investment within six months of transfer Holding period of at least one year for specified equity shares No Double Deduction: No deduction under section 80C is allowed for the cost of specified equity shares. Illustrative Example in Indian Context: Scenario: Mr. Gupta sold listed securities in March 2005, generating a long-term capital gain of ₹5 lakhs. Within six months, he invested ₹4 lakhs in an eligible issue of equity shares. Outcome: ₹4 lakhs of capital gain is exempt from tax under section 54ED. The remaining ₹1 lakh is taxable as capital gains. Disclaimer: To learn more one can refer the following resources:1) Income tax efiling website2) Income tax departement website This information is intended for general knowledge purposes only and does not constitute professional tax advice. 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