Section 54 and section 54GB of the Income Tax Act 1962 provide for

exemption from long term capital gains in case of an individual or HUF available on
reinvestment of capital gains and reinvestment of sales proceeds respectively.

As per Section 54 of the IncomeTax Act, you can avail tax exemptions from Capital Gains on selling a
residential property if you re-invest it for purchase or construction of a residential property. Under
section 54GB of the Income Tax Act, the exemption is provided from capital gain arising out of the
transfer of a residential property if you invest the amount for subscribing to the equity shares of the
eligible company.
(Section 54H) : Extension of time limit for acquiring new
Asset or Depositing or Investing amount of Capital Gain, in
case of Compulsory Acquisition

There may be a time lag between the previous year in which the asset is compulsorily
acquired and the previous year in which the compensation is actually received.

As per section 54H, the period for acquiring the new asset by the assessee referred to in
sections 54, 54B, 54D, 54EC and 54F (i.e. six months, one year before or two/three years after
the date of transfer of the asset) shall be reckoned from the date of receipt of such
compensation and not from the date on which the asset was originally transferred.
In the case of compulsory acquisition, the 'transfer' takes place in the year in which the asset
is compulsorily acquired by law, but the capital gain arises in the previous year in which the
part/full amount of compensation is received.

Analysis of the above provisions and the provisions discussed for compulsory acquisition
earlier would reveal the following:

1. Initial Compensation -

Capital gain is chargeable to tax in the previous year in which the compensation (or part
thereof) is first received. For availing the benefit of exemption under sections 54, 54B, 54D,
54EC and 54F, the new asset should be acquired within time-limit specified for this purpose.
But the specified time-limit shall be determined from the date of receipt of compensation. If
initial compensation is received in parts, then the entire initial compensation is taxable in the
year in which a part is first received, but the time-limit for acquiring the new asset under
sections 54, 54B, 54D, 54EC and 54F shall be determined on the basis of dates of receipt of
different parts of initial compensation.

2. Enhanced Compensation -

If any enhanced compensation is received, it is taxable in the year in which such

compensation is received and for acquiring the new asset under sections 54, 54B, 54D, 54EC
and 54F, the timelimit shall be determined from the date of receipt of additional
compensation