Section 54GB: Capital Gains Exemption for Investment in Eligible Companies and Startups
Section 54GB of the Income-tax Act, 1961 provided conditional capital gains relief when an individual or Hindu undivided family sold qualifying long-term residential property and invested the net consideration in equity shares of an eligible Indian company, which in turn acquired qualifying new assets. Its time-bound eligibility rules are essential: this is not an unrestricted exemption for present-day property sales.
What is Section 54GB?
Section 54GB was introduced to encourage investment of gains from certain residential-property disposals into qualifying small or medium enterprises and, subject to later amendments, eligible startups. Unlike section 54F, which concerns investment in a residential house, section 54GB concerns investment in shares of an eligible company followed by that company's investment in prescribed business assets.
Principal eligibility requirements
- Eligible taxpayer: an individual or Hindu undivided family (HUF).
- Original asset: a long-term residential property, comprising a house or plot of land, within the version of the law applicable to the transfer.
- Equity subscription: the taxpayer uses the net consideration to subscribe to equity shares of an eligible company before the applicable section 139(1) return-filing due date.
- Company investment: the company uses the subscription proceeds to acquire qualifying new assets within one year from the date of share subscription, subject to the deposit mechanism.
- Eligible company: the company must satisfy the applicable incorporation, business, controlling shareholding/voting rights and MSME or eligible-startup requirements.
- Time-limited availability: the relevant property-transfer deadline and startup-specific amendments must be checked for the particular year. A qualifying business investment alone cannot revive a lapsed relief.
How the exemption is calculated
If the cost of the company's qualifying new assets is at least the net consideration, the entire eligible capital gain may be exempt. If that cost is less, the exemption is proportionate:
Illustration: If a qualifying historical transfer produced a capital gain of Rs. 30 lakh, net consideration of Rs. 75 lakh and eligible new-asset expenditure of Rs. 60 lakh, the exemption would be Rs. 24 lakh (30 x 60 / 75), subject to all statutory conditions. The remaining Rs. 6 lakh would be taxable under the applicable rules.
Important statutory definitions
Eligible assessee
An individual or a Hindu undivided family.
Eligible company
An Indian-incorporated company meeting the statutory timing, eligible business, controlling shareholding or voting rights, and MSME or eligible-startup conditions. The detailed tests and the meaning of an eligible startup have changed through amendments; check the relevant year.
Net consideration
The full value of consideration for the property transfer less expenditure incurred wholly and exclusively in connection with that transfer, by reference to the definition in section 54F.
New asset
Generally qualifying new plant and machinery, subject to exclusions for previously used equipment, office or residential installations, office appliances, vehicles and assets whose whole cost is otherwise deductible. A specific statutory exception addressed computers and software for qualifying technology-driven startups.
Deposit of unspent company funds
Where the company had not used the full share-subscription amount by the taxpayer's applicable return-filing deadline, section 54GB required the unspent amount to be deposited in the prescribed account and used under the notified scheme. Amounts not used within the specified one-year period could lead to taxation of the previously exempt gain in the prescribed year. The company's right to withdraw unused deposits was governed by the scheme.
Five-year lock-in and withdrawal of relief
Under subsection (4), a sale or other transfer of the subscribed shares or qualifying new assets within five years of acquisition generally caused the earlier exempt gain to be brought to tax in the taxpayer's hands. Any separate gains on transfer of the shares or business assets could also be taxable. Verify the specific exceptions and amendments applicable to the relevant assessment year.
Historical sunset dates and later amendments
The original extract on this page states a general cut-off of 31 March 2017 and an eligible-startup extension to 31 March 2019. These reflect the historical text reproduced below, not a complete consolidation of subsequent Finance Act amendments. Later legislative changes extended the startup-related window. Before claiming any relief, verify the final applicable cutoff and all conditions against the official amended statute for the transfer date. The Income-tax Act, 2025 also requires attention for tax years beginning from 1 April 2026.
Section 54GB versus Section 54F
| Feature | Section 54GB | Section 54F |
|---|---|---|
| Reinvestment | Equity in an eligible company; company buys eligible assets | Qualifying residential house in India |
| Original asset | Specified long-term residential property | Long-term capital asset other than a residential house |
| Availability | Subject to statutory sunset and extensions | Subject to the rules applicable to the transfer year |
| Special restrictions | Company eligibility and five-year lock-in | Housing ownership, investment and disposal restrictions |
Official legislation and further reading
For authoritative statutory text, amendments and notifications, consult the Income Tax Department, the India Code legislative database, and the Gazette of India. For eligible startup conditions, also examine section 80-IAC and relevant government notifications. These external resources are provided within the article, not the navigation menu.
Original Section 54GB text and amendment notes
The following material is preserved from the uploaded webpage for reference. It is an older statutory extract and may not reflect later amendments or the current tax law.
Read the original statutory extract and footnotes
1(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.
(5) The provisions of this section shall not apply to any transfer of residential property made after the 31st day of March, 2017.
2 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, 2019" 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 2 or in an eligible business;
(iii) it is a company in which the assessee has more than fifty per cent. share capital or more than fifty 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) 2 or is an eligible start-up;
2 (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 in the Explanation to section 54F;
(d) "new asset" means new plant and machinery but does not include-
(i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;
(ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.
3 Provided that in the case of an eligible start-up, being a technology
driven start-up so certified by the Inter-Ministerial Board of Certification
notified by the Central Government in the Official Gazette, the new asset shall
include computers or computer software.
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1. Ins. by Act 23 of 2012, s. 19 (w.e.f. 1-4-2013).
2. The proviso ins. by Act 28 of 2016, s. 33 (1-4-2017).
3. Ins. by Act 28 of 2016, s. 33 (w.e.f. 1-4-2017).