Section 84 Capital gains on compulsory acquisition of lands and buildings not to be charged in certain cases.

Income-tax Act, 2025

At a Glance

Clause 84 of the Income Tax Bill, 2025 (Old Version) as reproduced. It provides relief from immediate capital gains taxation where capital assets (land/building or rights) forming part of an industrial undertaking are compulsorily acquired and the assessee reinvests proceeds to shift/re-establish or set up another industrial undertaking within three years. It affects taxpayers whose industrial land/buildings are compulsorily acquired and the revenue department with respect to deferred taxation and deposits. Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: Clause 84 is drafted as part of the Income Tax Bill, 2025 (Old Version). The provision addresses "capital gains arising from the transfer by way of compulsory acquisition under any law" where the asset is land, building or any right therein forming part of an industrial undertaking used in the two years preceding transfer. The clause applies where, within three years after transfer, the assessee purchases or constructs a "new asset" to shift or re-establish the undertaking or set up another industrial undertaking.

Definitions or explanations: The Bill uses terms "original asset" and "new asset" within the clause; no formal statutory definitions beyond their contextual use are provided in the text. "Industrial undertaking" is used but not defined in the clause. Any definition of "specified bank or institution," "scheme," or "section 67" are referenced but not defined within the clause itself.

Statutory Provision Mode

Text & Scope

The clause addresses the tax treatment of capital gains on compulsory acquisition where two cumulative conditions are met: (a) the asset compulsorily acquired was part of an industrial undertaking used in business during the two years immediately preceding transfer; and (b) within three years, the assessee purchases or constructs another land/building/right for shifting/re-establishing or creating a new industrial undertaking.

Two alternative tax treatments are provided:

• Where capital gains exceed the cost of the new asset: the excess is charged u/s 67 (i.e., treated as income) and for any capital gains arising from transfer of the new asset within three years, the cost for computing such gains shall be nil.
• Where capital gains are equal to or less than the cost of the new asset: no capital gains shall be charged u/s 67, and for any capital gains arising from transfer of the new asset within three years, the cost shall be reduced by the amount of the capital gains.

Interpretation

Legislative intent and interpretive principles indicated by the text: The clause intends to afford a deferral/exemption-like relief for compulsory acquisition of industrial land/buildings where proceeds are reinvested in replacing the undertaking, thereby reducing immediate tax burden to the extent of reinvestment. The three-year period is a temporal qualification for reinvestment. The drafting prescribes a mechanism (either tax the excess or reduce cost basis) to reflect the extent of reinvestment.

Principles: The provision treats reinvested proceeds as effectively continuing the capital asset's continuity for tax computation when the reinvestment is timely and to the extent of the reinvested amount.

Exceptions/Provisos

No explicit provisos or carve-outs beyond the main conditions are set out in the clause. Specific points not stated in the document: treatment of part-utilisation within three years for different portions of capital gains; consequences where new asset is purchased/constructed after three years; definition of "industrial undertaking" or "specified bank or institution." For any detail not included within the clause, the correct response is: Not stated in the document.

Illustrations

• Example 1: An assessee's factory land compulsorily acquired generates capital gain of Rs. 100. If within three years the assessee purchases new factory land costing Rs. 70, the excess Rs. 30 is charged u/s 67; and if that new land is sold within three years, its cost for computing gain will be nil. (Quantitative numbers illustrative and conform to clause mechanics.)

• Example 2: If capital gain is Rs. 50 and new asset cost is Rs. 80, then no capital gains is charged u/s 67; if the new asset is sold within three years, the cost basis for computing gain will be reduced by Rs. 50.

Interplay

The clause references other statutory elements: "compulsory acquisition under any law," "section 67" (income charging provision), and procedural timelines linked to return filing under a referenced section (the clause cross-refers to "the said sub-section" of the return provision). It also contemplates a "scheme notified by the Central Government" and deposits into a "specified bank or institution." The clause itself does not reproduce or summarize those external provisions or the scheme; therefore details of interaction are limited to textual cross-references. Specific cross-rules and notifications: Not stated in the document.

Differences between Section 84 of the Income-tax Act, 2025 and Clause 84 of the Income Tax Bill, 2025 (Old Version) and Practical Impact

• Timing language for deposit and filing: The Act (Section 84) states at sub-section (2) that the unutilised amount "shall be deposited in a specified bank or institution and utilised as per the scheme notified by the Central Government;" and more specifically requires the deposit "before the filing of the return not later than the due date applicable in the case of the assessee for filing the return of income under the section 263(1)." The Bill (Clause 84, old version) contains duplicate phrases in sub-clause (2)(a) and (b) stating the deposit "not later than the due date for filing the return of income under sub-section (1) of the said section" and "not later than the due date applicable in the case of the assessee for filing the return of income under the said sub-section."
• Formulation of withdrawal provision: The Act (Section 84(4)(b)) allows withdrawal "in accordance with the scheme referred to in sub-section (2)." The Bill (Clause 84(4)(b)) permits withdrawal "according to the said scheme."
• Stylistic and cross-reference differences: The Act explicitly cites section 263 for the return filing reference in sub-section (2); the Bill's references to "the said sub-section"/"sub-section (1) of the said section" are more repetitive and less precise in wording. Otherwise the substantive provisions (conditions, time-limits, tax consequences) are materially the same.

Practical impact summary:

• The differences are largely drafting and cross-reference variations rather than substantive policy changes. They do not, on the face of the text, alter eligibility, the three-year reinvestment period, the tax treatment when amounts exceed or do not exceed new-asset cost, or the ultimate charging of unutilised deposits to income u/s 67.
• Minor drafting clarity in the Act's reference to section 263 may reduce interpretive friction about the applicable return-filing deadline; the Bill's duplication could have created uncertainty. Thus the Act's wording is marginally clearer for compliance timing, but there is no substantive change in taxpayer obligation.
• No new procedural obligations, alternative remedies, or altered timelines are introduced by the Act vis-`a-vis the Bill's old version; compliance efforts remain the same in practice.

Practical Implications

• Compliance and risk areas: Timeliness - the three-year reinvestment window is critical. The clause conditions tax neutrality on reinvestment within that period and on deposit of unutilised amounts by the due date for filing the return. Missing the deadline for deposit or failing to show proof with the return risks immediate charging of the unutilised amount as income u/s 67. The exact return-filing provision referenced in the clause should be verified in the broader statute to determine the applicable due date. (The clause itself does not specify the numerical due date.)
• Record-keeping/evidence: The clause requires proof of deposit to be submitted with the return and treats amounts already utilised plus deposited amounts as deemed cost of the new asset. Therefore assessee records should demonstrate acquisition/construction invoices, bank deposit receipts into the specified institution, and documentary proof of application of deposited funds as per the notified scheme. The clause itself does not list documentary formats or thresholds.

Key Takeaways

• The clause offers conditional deferral/neutrality of capital gains tax on compulsory acquisition of industrial land/building where proceeds are reinvested in replacement assets within three years.
• Two outcomes depend on whether capital gains exceed the new asset cost: excess is taxed u/s 67; otherwise no immediate charge, with corresponding reduction in cost basis of the new asset.
• An unutilised portion must be deposited in a specified bank/institution by the return filing due date and utilised per a Central Government scheme; proof must be filed with the return.
• If deposited amounts are not fully utilised within three years, the unutilised portion is charged as income in the year the three-year period expires; withdrawal of remaining amounts is governed by the notified scheme.
• The clause relies on cross-references (section 67, the return-filing sub-section, and a government-notified scheme); details of these instruments are not included in the clause and are therefore critical for operational compliance. Not stated in the document: specific administrative forms, identifiers of the "specified bank or institution," and the notified scheme's terms.

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Full Text:

Section 84 Capital gains on compulsory acquisition of lands and buildings not to be charged in certain cases.

Capital gains deferral for compulsory acquisition where reinvestment in industrial undertaking preserves tax neutrality subject to deposit and timelines. Section 84 conditions tax neutrality for capital gains on compulsory acquisition of industrial land/buildings where the assessee reinvests proceeds in a replacement asset within the prescribed reinvestment period; excess proceeds over new-asset cost are charged as income and certain cost-basis adjustments apply for disposals within the reinvestment period. Unutilised proceeds must be deposited in a specified institution and applied per a notified scheme by the return-filing due date, with documentary proof required and residual unutilised amounts charged as income.