Capital Gain Exemption

Capital Gain Tax arises on the sale of Capital Asset by a taxpayer. The Income Tax Act allows a total / partial exemption from Capital Gain under different sections. However, the capital gain exemption amount can not exceed the total amount of capital gain. Following are the most common capital gains exemptions:

A taxpayer can claim the exemption while filing ITR for that particular financial year. An individual taxpayer needs to file ITR 2. And 31st July of the next financial year is the due date to file ITR. However, for FY 19-20 the due date to file ITR is 30th November 2020.

ITR for Gains from Sale of House / Property
CA Assisted Income Tax Return filing for individuals and HUFs having Capital Gains / Loss income from sale of house, property, land, etc.
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ITR for Gains from Sale of House / Property
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List of Capital Gain Exemption

The Income Tax Act has defined the particular sections under which exemptions can be claimed on capital gains earned. The intention of the exemption is to allow the taxpayer to invest in a new Capital Asset within a specified time limit without any tax burden.

Section Description Applicability Deduction Amount
54 Sale of House Property (LTCA) by Individual/HUF Purchase/Construction of New House Property. Lower of
Cost of New House Property
OR
Capital Gains
Purchased 1 year before or 2 years after the sale of a property.
Constructed within 3 years from the sale of a property.
54F Sale of Long Term Capital Asset (LTCA) other than house property by Individual/HUF Purchase/Construction of New House Property. Cost of new asset * Capital Gains / Net Consideration
Purchased 1 year before or 2 years after the sale of a property.
Constructed within 3 years from the sale of a property.
54EC Sale of Land or Building or both (LTCA) by any taxpayer Investment in NHAI/REC Bonds.  Lower of
Cost of Investment 
OR
Capital Gains
An investment made within 6 months from the sale of an asset. 
The investment amount can not be more than Rs. 50 lakhs. 
54B Sale of Agricultural Land (LTCA/STCA) by Individual/HUF Purchase of new Agricultural Land.  Lower of
Cost of New Agricultural Land 
OR
Capital Gains
Purchased within 2 years from the sale of land. 
Land sold must be used for agriculture purposes for 2 years prior to sale. 
54D Compulsory acquisition of land and building (LTCA) used in an industrial undertaking Purchase of land or building for shifting or re-establishing the industrial undertaking.  Lower of
Cost of New Asset
OR
Capital Gains
Purchase within 3 years from the date of compulsory acquisition. 
Land/Building acquired must be used for industrial undertaking purposes for 2 years prior to transfer. 
54E, 54EA, 54EB Sale of any LTCA by any taxpayer Investment in Specified Securities.  Cost of new asset * Capital Gains / Net Consideration
Specified securities include Government Securities, Savings Certificates, Units of UTI,  Specified Debentures, etc. 
An investment made within 6 months from the sale of an asset. 
54EE Sale of any LTCA by any taxpayer Investment in units of a specified fund. The investment amount can not be more than Rs. 50 lakhs.  Cost of new asset * Capital Gains / Net Consideration
Specified fund include units notified by the central government 
An investment made within 6 months from the sale of an asset.
54G Sale of plant, machinery, land,  building, or rights to land, building situated in an Urban Area used in the industrial undertaking.   Purchase of new plant, machinery, land, building in Rural Area.  Lower of
Cost of New Asset
OR
Capital Gains
Purchased within 1 year before and 3 years after the sale of assets. 
The asset sold can be LTCA or STCA. 
54GA Sale of plant, machinery, land,  building, or rights to land, building situated in an Urban Area used in the industrial undertaking.   Purchase of new plant, machinery, land, building in SEZ.  Lower of
Cost of New Asset
OR
Capital Gains
Purchased within 1 year before and 3 years after the sale of assets. 
The asset sold can be LTCA or STCA. 

 

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FAQs

How to claim exemption if we wish to buy the house property next year?

Taxpayer can claim exemption u/s 54, 54F depending on asset sold. An exemption can be claimed by putting the amount in Capital Gains Account Scheme (CGAS) before the due date of filing of ITR in the year of sale. And claim the same as exemption while filing ITR.

Can we claim exemptions on sale of Short Term Capital Asset(STCA)?

The taxpayer can claim exemption u/s 54B and 54G on Short Term Capital Asset. However, all the other exemptions are available on Lond Term Capital Asset.

What are the documents required as proof of investment while claiming exemption?

While filing ITR, taxpayer only needs to enter the exemption section, required details of purchased asset and amount of exemption claimed. However, it is important to keep the purchased assets documents on record for future use.

Section 54B : Exemption on Sale of Agricultural Land

Exemption under section 54B of the Income Tax Act is available on Capital Gains on sale of agricultural land and purchase of new agricultural land. The amount of Exemption under Section 54B will be lower of:

  1. The Cost of new Agricultural land,
  2. The Capital Gains on the sale of Agricultural land.

A taxpayer can claim the Capital Gains Exemption under Section 54B exemption while filing ITR for that particular financial year. The taxpayer needs to file ITR-2. And 31st July of the next financial year is the due date to file ITR. However, for FY 19-20 the due date to file ITR is 10th January 2021.

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Who can Claim an Exemption Under Section 54B of the Income Tax Act?

A taxpayer can claim exemption u/s 54B if all the below conditions are satisfied:

  1. The taxpayer must be an Individual or HUF. The benefit of exemption u/s 54 is not available to the company, LLP, or Firm.
  2. The agricultural land sold is a Long Term Capital Asset (Sold after 24 months) or Short Term Capital Asset.
  3. The agricultural land sold is used for agricultural purposes by the individual / his parent / HUF as the case may be for 2 years prior to transfer.
  4. New Agricultural land is purchased within 2 years from the sale of the agricultural land.
  5. A new Agricultural land should be in India.
In case of compulsory acquisition the
period of acquisition of new agricultural land will be determined from the date of receipt of compensation and not the date of compulsory acquisition.
Tip
In case of compulsory acquisition the
period of acquisition of new agricultural land will be determined from the date of receipt of compensation and not the date of compulsory acquisition.

What is the Amount of Exemption available Under Section 54B of the Income Tax Act?

As mentioned above, the Amount of Exemption under Section 54B will be least of the following:

  1. The Cost of new Agricultural land,
  2. The Capital Gains on the sale of Agricultural land.

Example: Palak sold agricultural land in FY 2019-20 for Rs. 60,00,000. The same was purchased in FY 2013-14 for Rs. 30,00,000. And she purchased a new agricultural land worth Rs. 45,00,000. Palak will be able to claim deduction under section 54B as follows:

Particulars Amount
Sales Consideration 60,00,000
Less: Index Cost of Acquisition (30,00,000*289/220) (39,40,909)
Long Term Capital Gains 20,59,091
New House Property Purchase Price 45,00,000
Section 54B Exemption Amount 20,59,091
Refer Index Cost from here.
Index Cost Calculator
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Index Cost Calculator
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What Happens to Exemption in the case of sale of Agricultural Land?

The lock-in period of 3 years is applicable when exemption u/s 54B of the income tax act is claimed. And the following situations can arise:

Situation 1

When new agricultural land is sold within 3 years from the date of purchase and the cost of a new house purchased is less than Capital Gains.

Consequences: The exemption u/s 54B is withdrawn. And the total sales value of agricultural land will be taxable as capital gains. Here the cost of acquisition will be NIL.

Situation 2

When new agricultural land is sold within 3 years from the date of purchase and the cost of a new house purchased is more than Capital Gains.

Consequences: The exemption u/s 54B is withdrawn. However, a taxpayer will be able to claim the cost of acquisition (Total Purchase Price – Exemption u/s 54B) while calculating capital gains.

Situation 3

When new agricultural land is sold after 3 years from the date of purchase/construction.

Consequences: The exemption u/s 54B is not withdrawn. A taxpayer will be able to claim the index cost of acquisition while calculating Long Term Capital Gains on agricultural land sold.

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What is the Capital Gains Account Scheme (CGAS)?

If a taxpayer is unable to utilize the whole or part of the sales consideration for purchase/construction of new property till the due date of submission of ITR, then it should be deposited in the Capital Gains Deposit Account Scheme. Taxpayer can claim exemption of amount already spent on construction/purchase of property along with the amount deposited in CGAS.

Keep in mind, if the amount deposited in the Capital Gains Account Scheme is not utilized within the time limit mentioned, then it shall be treated as income of the last year in which 3 years expire.

FAQs

Can I claim an exemption if I buy new agricultural land in the name of my spouse?

No. In order to claim exemption u/s 54B, the land purchased has to be in the name of the seller. The exemption is not available if new land is purchased in the name of the spouse.

Can NRI claim exemption u/s 54B on land purchased?

Yes, NRI can claim exemption u/s 54B of the Income Tax Act. Provided the agricultural land sold and purchased is situated in India.

Is capital gain exempt in the case of compulsory acquisition of agricultural land by the government?

Yes. Capital gain arising from compulsory acquisition of agricultural land under any law and the consideration of which is approved by the central government or RBI received on or after 01/04/2004 is fully exempt from tax. It is exempt u/s 10(37) of the income tax act.

Section 54EC of the Income Tax Act

Exemption under section 54EC of the Income Tax Act is available on Capital Gains on sale of any long term capital asset being land or building or both and invested in NHAI or REC Bonds. The amount of Exemption under Section 54EC will be lower of:

  1. The Cost of NHAI/REC Bonds,
  2. The Capital Gains on the sale of land or building.

A taxpayer can claim this Capital Gains Exemption while filing ITR in that particular financial year. The taxpayer needs to file ITR-2. And 31st July of the next financial year is the due date to file ITR. However, for FY 19-20 the due date to file ITR is 10th January 2021.

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Budget 2018 Update

The proposed amendment u/s 54EC in the budget 2018 has inter alia proposed an amendment to Section 54EC. The government has proposed to amend the section by restricting its scope only to capital gains arising from long term capital assets, being land or building, or both. Furthermore, it is also proposed to provide the long term specified asset, for making any investment under the section on or after the 1st day of April 2018 shall mean any bond, redeemable after five years against the earlier three years and issued on or after 1st day of April 2018 by the National Highways Authority of India or by the Rural Electrification Corporation Limited or any other bond notified by the Central Government in this behalf.

This amendment is to take effect from the 1st of April 2019. It will apply in relation to the AY 2019-20 and subsequent assessment years.

Who can Claim an Exemption Under Section 54EC of the Income Tax Act?

A taxpayer can claim exemption u/s 54EC if all the below conditions are satisfied:

  1. Any assessee can claim exemption u/s 54EC. Therefore, an Individual, HUF, Company, LLP, Firm, etc can claim this exemption.
  2. The asset sold is a Long Term Capital Asset (LTCA) being Land or Building or Both. The asset is long Term if it has been held for more than 24 months.
  3. Capital Gains are invested within 6 months from the date of transfer.
  4. Investment can be made in the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), or Any Other Bonds notified by the Central Government.
  5. The investment amount can not be more than Rs. 50 lakhs during the current and succeeding financial year.
From FY 2018-19, Investment in NHAI/REC bonds are redeemable after 5 years as against earlier 3 years as per Budget 2018.
Tip
From FY 2018-19, Investment in NHAI/REC bonds are redeemable after 5 years as against earlier 3 years as per Budget 2018.

What is the Amount of Exemption Available Under Section 54EC of the Income Tax Act?

As mentioned above, the Amount of Exemption under Section 54EC will be least of the following:

  1. The Cost of NHAI/REC Bonds,
  2. The Capital Gains on the sale of land or building.
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Example: Jay sold land in FY 2019-20 for Rs. 60,00,000. It was purchased in FY 2013-14 for Rs. 30,00,000. And Jay purchased NHAI bonds for Rs. 45,00,000 in FY 2019-20. Jay will be able to claim deduction under section 54EC as follows:

Particulars Amount
Sales Consideration 60,00,000
Less: Index Cost of Acquisition (30,00,000*289/220) (39,40,909)
Long Term Capital Gains 20,59,091
NHAI Bonds Price 45,00,000
Section 54EC Exemption Amount 20,59,091
Refer Index Cost from here.
Index Cost Calculator
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Index Cost Calculator
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What happens to exemption if bonds are sold?

The lock-in period of 5 years is applicable when exemption u/s 54EC of the income tax act is claimed. And the following situations can arise:

Situation 1:

When bonds are sold within 5 years from the date of purchase.

Consequences: The exemption u/s 54EC is withdrawn. And the amount of exemption availed will be reduced from the cost of the asset. And Capital Gains will be the total sales value minus the cost of the asset.

Situation 2:

When bonds are sold after 5 years from the date of purchase.

Consequences: The exemption u/s 54EC is not withdrawn. A taxpayer will be able to claim the index cost of acquisition while calculating Capital Gains on bonds sold.

FAQs

Can I invest in Capital Gains Account Scheme (CGAS) and claim exemption u/s 54EC?

No. The Benefit of investing in CGAS is not available under section 54EC. The taxpayer needs to invest in bonds within 6 months of the date of transfer of asset.

Can NRI Claim exemption u/s 54EC?

Yes, NRI can claim exemption u/s 54EC of the Income Tax Act. Provided the land or building sold is situated in India.

What will be the tax rate on capital gains earned if exemption u/s 54EC is not claimed?

LTCA are taxed at special rates. Land and Building are considered as movable assets and taxed at 20% with Indexation.

Section 54F of the Income Tax Act

Exemption under section 54F of the Income Tax Act is available on Capital Gains on sale of any long term capital asset other than house property and invested in purchase/construction of house property. The amount of Exemption under Section 54F will be lower of:

Exemption = Cost of new asset x Capital Gains / Net Consideration

Maximum Exemption is up to Capital Gains.

A taxpayer can claim this Capital Gains Exemption while filing ITR in that particular financial year. The taxpayer needs to file ITR-2. And 31st July of the next financial year is the due date to file ITR. However, for FY 19-20 the due date to file ITR is extended to 10th January 2021 (in case tax audit is not applicable).

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Who can Claim an Exemption Under Section 54F of the Income Tax Act?

A taxpayer can claim exemption u/s 54F if all the below conditions are satisfied:

  1. The taxpayer must be an Individual or HUF. The benefit of exemption is not available to the company, LLP, or Firm.
  2. The asset sold is a Long Term Capital Asset (LTCA) other than House Property.
  3. On the date of sales, the taxpayer does not own more than one house property.
  4. A new Residential House is purchased before 1 year or after 2 years from the sale of the long term capital asset, or
  5. In case of construction of a new House Property, within 3 years from the sale of the residential House Property.
  6. A new Residential House should be in India.

What is the Amount of Exemption Available Under Section 54F of the Income Tax Act?

As mentioned above, the Amount of Exemption under Section 54F will be available as per the following formula:

Exemption = Cost of new asset x Capital Gains / Net Consideration

Maximum Exemption is up to Capital Gains.

Example: Ajay sold gold in FY 2019-20 for Rs. 15,00,000. It was purchased in FY 2012-13 for Rs. 5,00,000. And Ajay purchased his second house property for Rs. 35,00,000 in FY 2019-20. Ajay will be able to claim deduction under section 54F as follows:

Particulars Amount
Sales Consideration 15,00,000
Less: Index Cost of Acquisition (5,00,000*289/200) (7,22,500)
Long Term Capital Gains 7,77,500
New House Property Purchase Price 35,00,000
Section 54F Exemption Amount (35,00,000*7,77,500/15,00,000) = 18,14,167 or 7,77,500 7,77,500
Refer Index Cost from here.
When full Net Consideration/Sales Value is invested, the full amount of Capital Gains is exempt under section 54F of the Income Tax Act.
Tip
When full Net Consideration/Sales Value is invested, the full amount of Capital Gains is exempt under section 54F of the Income Tax Act.

What Happens to Exemption if New House Property is Sold?

The lock-in period of 3 years is applicable when exemption u/s 54F of the income tax act is claimed. And the following situations can arise:

Situation 1

When a new house is sold within 3 years from the date of purchase/construction.

Consequences

The exemption u/s 54F is withdrawn. And the amount of exemption availed will be reduced from the cost of the asset. And Capital Gains will be the total sales value minus the cost of the asset.

Situation 2

When a new house is sold after 3 years from the date of purchase/construction.

Consequences

The exemption u/s 54F is not withdrawn. A taxpayer will be able to claim the index cost of acquisition while calculating Capital Gains Tax on sale of house property sold. And capital gains will be taxed at 20%.

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What is the Capital Gains Account Scheme (CGAS)?

If a taxpayer is unable to utilize the whole or part of the sales consideration for purchase/construction of new property till the due date of submission of ITR, then it should be deposited in the Capital Gains Deposit Account Scheme. Taxpayer can claim exemption of amount already spent on construction/purchase of property along with the amount deposited in CGAS.

Keep in mind, if the amount deposited in the Capital Gains Account Scheme is not utilized within the time limit mentioned, then it shall be treated as income of the last year in which 3 years expire.

FAQs

What is Net Consideration u/s 54F?

Net Consideration is the full Sales value/consideration received on sale of Long Term Capital Asset reduced by any expense incurred in connection with the transfer.
Net Consideration = Sales Value – Transfer Expenses.

Can NRI Claim exemption u/s 54F?

Yes, NRI can claim exemption u/s 54F of the Income Tax Act. Provided the LTCA sold and house property purchased is situated in India.

What will be the tax rate on capital gains earned if exemption u/s 54F is not claimed?

LTCA are taxed at special rates. It depends on the type of asset sold.
Movable Asset: 20% with Indexation,
Shares/Securities: 10% u/s 112A (above Rs. 1,00,000).

Section 54 of the Income Tax Act – Capital Gains Exemption

Exemption under section 54 of the Income Tax Act is available on Capital Gains on sale of one house property and purchase/construction of another house property. The amount of Exemption under Section 54 will be lower of:

  1. The Cost of new Residential House Property
  2. The Capital Gains on the sale of a property

A taxpayer can claim the Capital Gains Exemption under Section 54 while filing ITR for that particular financial year. The taxpayer needs to file ITR-2. And 31st July of the next financial year is the due date to file ITR. However, for FY 19-20 the due date to file ITR is 10th January 2021.

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Who can Claim an Exemption Under Section 54 of the Income Tax Act?

A taxpayer can claim exemption u/s 54 if all the below conditions are satisfied:

  1. The taxpayer must be an Individual or HUF. The benefit of exemption u/s 54 is not available to the company, LLP, or Firm.
  2. The asset sold is a Long Term Capital Asset (Sold after 24 months).
  3. The asset sold is a Residential House Property. And any income earned from this property was shown under the head “Income From House Property”.
  4. A new Residential House is purchased before 1 year or after 2 years from the sale of the residential House Property, or
  5. In case of construction of a new House Property, within 3 years from the sale of the residential House Property.
  6. A new Residential House should be in India.
From FY 2019-20, a taxpayer can claim exemption u/s 54 in respect of investment made in 2 residential house properties. However, The exemption for the investment made, by way of purchase or construction, in 2 residential house properties shall be available if the amount of long term capital gains does not exceed Rs. 2 crores. This option can be exercised only once in a lifetime.
Tip
From FY 2019-20, a taxpayer can claim exemption u/s 54 in respect of investment made in 2 residential house properties. However, The exemption for the investment made, by way of purchase or construction, in 2 residential house properties shall be available if the amount of long term capital gains does not exceed Rs. 2 crores. This option can be exercised only once in a lifetime.

What is the Amount of Exemption Available Under Section 54 of the Income Tax Act?

As mentioned above, the Amount of Exemption under Section 54 will be least of the following:

  1. The Cost of New Residential House Property OR
  2. Capital Gains arising on the sale of a property.

Example: Ravi sold a house property in FY 2019-20 for Rs. 60,00,000. The property was purchased by him in FY 2013-14 for Rs. 30,00,000. And he purchased a new house property worth Rs. 45,00,000 in another city. Ravi will be able to claim deduction under section 54 as follows:

Particulars Amount
Sales Consideration 60,00,000
Less: Index Cost of Acquisition (30,00,000*289/220) (39,40,909)
Long Term Capital Gains 20,59,091
New House Property Purchase Price 45,00,000
Section 54 Exemption Amount 20,59,091
Refer Index Cost from here.
Index Cost Calculator
You can calculate the Index Cost of acquisition of property from here.
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Index Cost Calculator
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What Happens to Exemption if New House Property is Sold?

The lock-in period of 3 years is applicable when exemption u/s 54 of the income tax act is claimed. And the following situations can arise:

Situation 1:

When a new house is sold within 3 years from the date of purchase/construction and the cost of a new house purchased is less than Capital Gains.

Consequences: The exemption u/s 54 is withdrawn. And the total sales value of new house property will be taxable as capital gains. Here the cost of acquisition will be NIL.

Situation 2:

When a new house is sold within 3 years from the date of purchase/construction and the cost of a new house purchased is more than Capital Gains.

Consequences: The exemption u/s 54 is withdrawn. However, a taxpayer will be able to claim the cost of acquisition (Total Purchase Price – Exemption u/s 54) while calculating capital gains.

Situation 3:

When a new house is sold after 3 years from the date of purchase/construction.

Consequences: The exemption u/s 54 is not withdrawn. A taxpayer will be able to claim the index cost of acquisition while calculating Capital Gains Tax on sale of house property. And capital gains will be taxed at 20%.

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What is the Capital Gains Account Scheme (CGAS)?

If a taxpayer is unable to utilize the whole or part of the sales consideration for purchase/construction of new property till the due date of submission of ITR, then it should be deposited in the Capital Gains Deposit Account Scheme. Taxpayer can claim exemption of amount already spent on construction/purchase of property along with the amount deposited in CGAS.

Keep in mind, if the amount deposited in the Capital Gains Account Scheme is not utilized within the time limit mentioned, then it shall be treated as income of the last year in which 3 years expire.

FAQs

Can I claim exemption if I buy new property in the name of my spouse?

No. In order to claim exemption u/s 54, the property purchased has to be in the name of the seller. The exemption is not available if a new property is purchased in the name of the spouse.

Can NRI claim exemption u/s 54 on House Property purchased?

Yes, NRI can claim exemption u/s 54 of the Income Tax Act. Provided the house property sold and purchased is situated in India.

Is exemption allowed if the builder of a property fails to hand it over within 3 years?

Yes. The exemption is still allowed to the taxpayer u/s 54. Even when the builder of a property fails to hand it over to him.

MCA Portal : Track Payment Status

There are two payment options on the MCA Portal after eForm is uploaded successfully. You can select Pay Now option and make payment immediately or you can select Pay Later option. Uploaded eForm will be processed only once payment of fees is done. You can use Track Payment Status service to check the payment status of uploaded eForm or to download the paid challan copy.

Steps to Track Payment Status: MCA Portal

  1. Go to MCA Portal

    Click on MCA Services > Fee and Payment Services > Track Payment Status

  2. Enter the SRN of the uploaded eForm. Click on the Submit.

    In the Track Payment Search Box, enter the SRN Number, and click Submit.

  3. The status will appear. No action is required if the payment status is Paid.

    And you can download the copy of eForm Challan/Receipt/Acknowledgement by clicking on it.

If the payment status is Not Paid. You can go to Pay Later services to make payment of fees.

FAQs

How can I download MCA Paid Challan?

You can download the copy of challan using Track Payment Status service of MCA. Following are the steps to download MCA paid challan:

– Go to mca.gov.in,
– Go to MCA Services > Fee and Payment Services > Track Payment Status,
– Enter SRN of uploaded eForm and click Submit,
– Click on copy of eForm Challan/Receipt/Acknowledgement to download copy of Paid Challan.

What are the different mode available for making MCA fees payment?

The different modes of payment available are:
– Credit card/ Debit Card (Pay online)
– Challan (Generate the Challan online, fill it and deposit it off-line at an authorized bank branch)
– NEFT
– Net Banking (Pay online)

Which Banks provide a Net Banking Payment facility for making MCA Payments?

Net banking payment facility of following bank is available on MCA Portal
– State Bank of India
– Punjab National bank
– ICICI Bank
– HDFC Bank
– Union Bank of India
– Indian Bank
– Union Bank of India

MGT-14 : Filing of Resolution/Agreement with ROC

Companies are incorporated with the Ministry Of Corporate Affairs (MCA) in India. And the activities of incorporated companies are monitored by the Registrar of Company (ROC). MGT-14 is used to file certain resolutions and agreement passed at the meeting of the Board of Directors/Shareholders/Creditors of the company. The following documents of a company can be filed with the ROC via MGT-14:

  • Resolution(s),
  • Agreement(s),
  • Postal Ballet Resolution(s) under section 110,
  • Proposed resolution under section 94(1).

Who can file MGT-14?

MGT-14 can be filed by any company incorporated under the Companies Act 2013/Companies Act 1956 for the following events/transactions:

  • Alteration of MOA,
  • Private Placement in the company,
  • Alteration of AOA,
  • Alteration of Object Clause of the company,
  • Change in objects of the company in case the company has a un-utilised amount of money raised through the issue of the prospectus,
  • Conversion from private to public company,
  • Conversion from the public to a private company,
  • Issue further shares to persons (whether or not including existing shareholders or employees),
  • Issue of further shares to employees under a scheme of employees’ stock option,
  • Reclassification of Shares of the company,
  • Issue of sweat equity shares
  • To apply to a court to wind- up the company
  • Issue of Global Depository Receipts in any foreign country
  • Voluntary winding up of the company under section 304,

Information Required to file MGT-14

The following information is required to file MGT-14:

  • CIN of the company,
  • Type of Event,
  • Date of Notice and Date of Passing Resolution for an event,
  • Details of the resolution/agreement passed on that event,
  • Supporting/Attachments.

Steps to file MGT-14

  1. Access the MCA Portal

    Go to mca.gov.in, and login with your Credentials for filing MGT – 14

  2. Login to your account

    Next, Login to your account on MCA by entering your credentials there.

  3. Click on Upload e-Forms

    You will find a option to upload e-forms there. click on that option.

  4. Click Normal Forms > Browse

    Click on Normal Forms and click on Browse to upload saved MGT-14.

  5. Save SRN & make payment.

    Once the form is uploaded successfully, SRN (Service Request Number) will be generated. Save the SRN to make payment of form fees. The form will be processed once the payment of form fees is done.

MGT-14 gets processed by the authority concerned and not by Straight Through Process. Hence an email will be sent to the company once form gets successfully processed.
Tip
MGT-14 gets processed by the authority concerned and not by Straight Through Process. Hence an email will be sent to the company once form gets successfully processed.

Fee of MGT-14

MGT-14 needs to be filed within 30 days from the date of passing the resolution/agreement. In the case of IFSC MGT-14 needs to be filed within 60 days. The fee of form depends on the company capital structure:

  • A company having a share capital,
  • A company not having a share capital.

In the case of a company having a share capital

Nominal Share Capital Fee Applicable
Less than 1,00,000 INR. 200
1,00,000 to 4,99,999 INR. 300
5,00,000 to 24,99,999 INR. 400
25,00,000 to 99,99,999 INR. 500
1,00,00,000 or more INR. 600

In the case of a company not having a share capital

Fee Applicable
Rupees INR. 200 per document

Additional Fees

Period of Delays All Forms
Up to 30 days 2 times of normal fees
More than 30 days and up to 60 days 4 times of normal fees
More than 60 days and up to 90 days 6 times of normal fees
More than 90 days and up to 180 days 10 times of normal fees
More than 180 days 12 times of normal fees

Additional fees are applicable when a form is filed after 30 days from the event date. In the case of IFSC, additional fees will be applicable after 60 days from the date of the event.

FAQs

Who needs to file MGT-14?

MGT-14 needs to be filed by all the companies for the following resolutions:
> Board Resolution passed by the company other than Private Limited Company,
> Special Resolution passed by all the company.

Can I file one MGT-14 for all the events/agreement of the company?

No. For each event/agreement, separate MGT-14 needs to be filed with the ROC.

When should MGT 14 be filed?

eForm MGT 14 needs to be filed with the ROC within 30 days from the date of passing of resolution or formulating the agreement

Form GNL-2 : Submission of Documents with ROC

Companies are incorporated with the Ministry Of Corporate Affairs (MCA) in India. And the activities of incorporated companies are monitored by the Registrar of Company (ROC). The companies need to file certain documents with the ROC in the normal course of business. Form GNL-2 can be filed when there is no prescribed eform available for filing that document. It is commonly used by the companies for the following:

  • Submitting Prospectus of Company before the fresh issue of shares,
  • Submitting Offer Letter (PAS-4) in case of Private Placement,
  • Furnishing Circular for inviting deposits in the company,
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Who can file GNL-2?

Form GNL-2 can be filed by any company incorporated under the Companies Act 2013/Companies Act 1956 for the following transactions:

  • Prospectus
  • Information Memorandum
  • Private placement offer letter
  • Record of a private placement offer to be kept by the company
  • Circular for inviting deposits
  • Circular in the form of advertisement for inviting deposits
  • Form 149 of the Companies (Court) Rules, 1959
  • Form 152 of the Companies (Court) Rules, 1959
  • Form 153 of the Companies (Court) Rules, 1959
  • Form 154 of the Companies (Court) Rules, 1959
  • Form 156 of the Companies (Court) Rules, 1959
  • Form 157 of the Companies (Court) Rules, 1959
  • Form 158 of the Companies (Court) Rules, 1959
  • Form 159 of the Companies (Court) Rules, 1959
  • Others

Information Required to file GNL-2

The following information is required for filing GNL-2:

  • CIN of the company,
  • Type of Document to be filed with GNL-2,
  • Details of the documents being filed,
  • Date of event,
  • Date of passing resolution relating to the document,
  • Supporting Attachments i.e, copy of prospectus or copy of private placement offer letter.

Steps to file GNL-2

  1. Access MCA Portal.

    Go to the MCA Portal and Login with your credentials.

  2. Click on Upload e-Forms

    On the MCA Portal, click on My Workspace and then click on Upload e-Forms.

  3. Upload the saved GNL-2.

    Click on Normal Forms and click on Browse to upload the saved GNL-2 File.

  4. Save the SRN to make payment of form fees.

    Once the form is uploaded successfully, SRN (Service Request Number) will be generated. Save the SRN to make payment of form fees. The form will be processed once the payment of form fees is done.

Form GNL-2 gets processed by the authority concerned and not by Straight Through Process. Hence an email will be sent to the company once form gets successfully processed.
Tip
Form GNL-2 gets processed by the authority concerned and not by Straight Through Process. Hence an email will be sent to the company once form gets successfully processed.

Fee of GNL-2

Form GNL-2 needs to be filed within 30 days from the event date. The fees are applicable based on the capital structure of the company:

  • In the case of a company having a share capital,
  • In the case of a company not having a share capital.

In the case of a company having a share capital

Nominal Share CapitalFee Applicable
Less than 1,00,000INR. 200
1,00,000 to 4,99,999INR. 300
5,00,000 to 24,99,999INR. 400
25,00,000 to 99,99,999INR. 500
1,00,00,000 or moreINR. 600

In the case of a company not having a share capital

Fee Applicable
Rupees INR. 200 per document

Additional Fees

Period of DelaysAll Forms
Up to 30 days2 times of normal fees
More than 30 days and up to 60 days4 times of normal fees
More than 60 days and up to 90 days6 times of normal fees
More than 90 days and up to 180 days10 times of normal fees
More than 180 days12 times of normal fees

Additional fees are applicable when a form is filed after 30 days from the event date.

FAQs

Is Form GNL-2 required to be filed if new e-form PAS-6 for filing private placement offer letter (PAS-4) and record of private placement(PAS-5) is filed?

No need to file GNL -2. Instead only PAS-6 need to be filed

In case of appointment of Auditor for the A.Y. 2014-15, which Form is required to be filed?

ADT – 1 i.e notice to the ROC by company for the appointment of Auditors is required to be filed as an annexure to GNL-2

What documents are to be annexed while uploading Form GNL-2?

Annex the ADT 1 (Digitally Signed)+ Resolution Copy + Letter from Auditor in the optional attachment tab of the GNL-2 and submit it to ROC

ESOPs Taxation in the hands of an Employee

What are ESOPs?

ESOP (Employee Stock Ownership Plan) is an Employee Benefit Plan provided by the company/employer. ESOP allows an employee to buy a stock of their company at a below-market price. It also offers ownership interest to employees. ESOPs can be issued in as Direct Stock, Profit-Sharing Plans or Bonus. ESOPs is the three-step process:

  1. The company/employer decides to issue shares,
  2. The employee decides to exercise/buy issued shares,
  3. The employee decides to sell shares.

Before granting ESOPs to employees, an employer needs to follow Rules and Regulations relating to ESOPs are as per the Companies Act 2013.

An employee needs to understand ESOP taxation before exercising the option. ESOPs are taxed twice in the hands of an employee:

  • At the time of exercising right i.e purchasing the shares,
  • At the time of selling the shares.

Hence it is important to understand the tax implications of ESOPs before filing ITR of that financial year.

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Prerequisites of ESOPs

Following are the prerequisite of ESOP:

  • An employer has the right to decide who can avail ESOP,
  • An employee needs to go through the pre-defined vesting period ie., an employee has to work for the company until a part or the entire stock options could be exercised,
  • The company/employer grants ESOPs to its employees for a Specified Number of Shares of the company at a Pre-determined Price after the option period (a certain number of years).  

Employer: Contributions to the ESOP are tax-deductible as they are made to repay the loan amount. Both principal and interest are tax-deductible. But once ESOPs are executed, the employer/company needs a proper administration including the third-party administration, trustee, valuation, legal costs. Hence it will be the burden of ongoing cost for a company/employer.

Benefits of ESOPs

The purpose of ESOP is to give benefit to both the Employer/Company and Employee. Startup eco-systems widely use ESOPs.

Following are the benefits of ESOP to the Employer/Company:

  • For attracting and retaining high-quality employees,
  • Making employees stakeholders of the company,
  • The company can avoid cash compensation as a reward, thus saving on immediate cash outflow.

Following are the benefits of ESOP to an Employee:

  • The benefit of acquiring the shares of the company at the nominal rate, and sell them (after a defined tenure set by his employer) and make a profit,
  • Compensation of hard work in the form of ownership interest in the company.

Tax Implications of ESOPs

It is important to understand the tax implications of ESOPs in India before the employer considers implementing an ESOP scheme.

Employee: ESOPs are taxed at the following two times:

  1. At the time of Exercising ESOP: It is considered as a Prerequisite under Salary Income Head. Hence when an employee exercises his option, the difference between Fair Market Value (FMV) as on date of exercise and the exercise price is taxable as a prerequisite.
  2. At the time of Selling: It is considered as Capital Gain. An employee might sell his/her shares after buying them. In case he/she sells these shares at a price higher than FMV on the exercise date, he/she would be liable for capital gains tax.

ESOPs Taxation on Purchase of Shares

When an employee buys the shares of a company, it is treated as Perquisite. The shares are credited to a Demat Account of an employee once shares are purchased. Following are the tax implications when you buy the shares:

  • Perquisite is the difference between the Fair Market Value (FMV) and exercised price/buy price.
  • Perquisite is a part of taxable salary and taxed under the Salary Income Head.
  • It will be taxed in the year in which ESOP is exercised by an employee. An employer/company will deduct TDS on the same.
  • Form 16 issued by an employer/company will reflect the prerequisite amount and TDS on the same.

Example: Neha works in a startup in India. During FY 2019-20 her company announces ESOPs for all the current employees. Neha decides to exercise her option to buy the shares of the company. Under this scheme, Neha received 2000 shares at INR. 20 per share. The FMV of the shares is INR. 65 per share. Following are the tax implication on the above transaction:

Purchase Price: INR. 20

FMV: INR. 65

Perquisite: INR 45 (65-20)

Taxable Perquisite Amount: INR. 90,000 (2000X65)

Now the company will treat INR. 90,000 as a taxable salary of Neha and will deduct TDS on the same. While filing her ITR Neha needs to show INR. 90,000 as Perquisites under Salary Income Head.

In Budget 2020 FM announced to defer TDS or tax payment on shares allotted by the startups to their employees under ESOPs. This means an employee of startup who are exercising their ESOPs may have to pay tax at a later date. Employees will be paying tax at the time of exit from the company or selling the shares or for a period of 5 years whichever is earlier.
Tip
In Budget 2020 FM announced to defer TDS or tax payment on shares allotted by the startups to their employees under ESOPs. This means an employee of startup who are exercising their ESOPs may have to pay tax at a later date. Employees will be paying tax at the time of exit from the company or selling the shares or for a period of 5 years whichever is earlier.

ESOP Taxation on Sale of Shares

When an employee sells the shares, it is treated as Capital Gains. Following factors are considered for calculating Capital Gain Income:

  1. The Period of Holding: In case of ESOPs period of holding is from the exercise date up to the date of sale. Short Term or Long Term Capital Gain is determined by taking into account the period of holding.
  2. Taxable Amount: The difference between Sale Price and FMV on the exercise date is taxed as Capital Gains.

The tax treatment is different depending on whether the company is listed on the stock exchange or not.

Tax Treatment on sale of Listed Shares

  • Long Term Capital Gains(LTCG): Taxed at a special rate of 10%. (Shares held for more than 12 months).
  • Short Term Capital Gains(STCG): Taxed at a special rate of 15%.(Shares held for less than 12 months).

Tax Treatment on Sale of Unlisted Shares

  • Long Term Capital Gains(LTCG): Taxed at a special rate of 20% with Indexation (Shares held for more than 24 months).
  • Short Term Capital Gains(STCG): Taxed at applicable slab rate (Shares held for less than 24 months).

Example: Arya is a salaried individual. She works for a startup(listed Company) She received 2000 shares from her company under the ESOPs scheme in FY 2018-19. And she sales the shares on 20/01/2020. Following are the information to keep in mind:

Date of Purchasing Shares/Exercising the ESOPs: 25/02/2019

FMV as on 25/02/2019: INR. 50

Sales Price as on 20/01/2020: INR. 75

In the above case, the following will be the taxability:

Period Of Holding: 25/02/2019 to 20/01/2020 i.e, less than 12 months (Listed Company). Hence there will be Short Term Capital Gains.

Taxable Amount: INR. 50,000 [2000X25(75-50)]

Tax Rate: 15%. Since this is STCG from shares of Listed Company it is taxable at a special rate of 15%.

Tax Amount: INR. 7,500 (50000 X15/100)

FAQs

Under which head of Income-tax is ESOP taxable and which ITR is to be filed?

-When an employee buys the shares of a company, it is treated as Perquisite. And thus taxable under the head Salary. In this case, the taxpayer is required to file ITR-1.
-When an employee sells the shares, it is treated as Capital Gains and thus taxable under Capital Gain head. In this case, the taxpayer is required to file ITR-2.

How do I report employee stock options on tax return?

Since you’ll have to exercise your option through your employer, your employer will usually report the amount of your income as ordinary wages or salary and the income will be included when you file your tax return on Income Tax Portal.

What happens when you leave an ESOP?

If you quit or are laid off, the ESOP distributions are deferred for six years . Once those six years pass, you may receive the value of your ESOP shares in either one lump sum, or in basically equal payments made over five years.