Income Tax Act 2025: Section 84 for Tax Year 2026-27

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

[Section-84 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 84(1) of Income Tax Act 2025

84(1) Where an assessee has––

• (a) capital gains arising from the transfer by way of compulsory acquisition under any law, of a capital asset being land or building or any right in land or building, forming part of an industrial undertaking belonging to him, which was being used by the assessee for the business of the said undertaking in the two years immediately preceding the date of transfer (original asset); and
• (b) within three years after that date, purchased any other land or building or any right in any other land or building or constructed any other building for shifting or re-establishing the said undertaking or setting up another industrial undertaking (new asset),

then, instead of the capital gain being charged to income-tax as income of the tax year in which the transfer took place, it shall be dealt with as follows:—

• (i) if the capital gains exceeds the cost of new asset, such excess shall be charged under section 67, and for computing any capital gains arising from the transfer of the new asset within three years of its purchase or construction, the cost shall be nil; or
• (ii) if the capital gains is equal to or less than the cost of new asset, no capital gains shall be charged under section 67 and for computing capital gains from the transfer of the new asset within three years of its purchase or construction, the cost shall be reduced by the amount of the capital gains.

Section 84(2) of Income Tax Act 2025

84(2) If the capital gains is not utilised by the assessee to purchase the new asset before filing the return of income under section 263, then––

• (a) the unutilised amount shall be deposited not later than the due date for filing the return of income under sub-section (1) of the said section in a specified bank or institution and utilised as per the scheme notified by the Central Government;
• (b) such deposit shall be made not later than the due date applicable in the case of the assessee for filing the return of income under the said sub-section; and
• (c) the proof of deposit shall be submitted along with the return on or before the due date for filing the return.

Section 84(3) of Income Tax Act 2025

84(3) For the purposes of sub-section (1), the amount already utilised for purchasing or constructing the new asset together with the deposited amount under sub-section (2), shall be deemed to be the cost of the new asset.

Section 84(4) of Income Tax Act 2025

84(4) If the amount deposited under sub-section (2) is not fully utilised for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

• (a) the unutilised amount shall be charged under section 67 as the income of the tax year in which three years from the date of the transfer of the original asset expires; and
• (b) the assessee shall be entitled to withdraw the unused amount according to the said scheme.

FAQs on Section 84 of Income Tax Act 2025

1. What is Section 84(1) of the Income Tax Act, 2025 about?
Section 84(1) provides relief from immediate taxation of capital gains arising from compulsory acquisition of land, building, or any right therein forming part of an industrial undertaking, if the assessee reinvests in a new asset within three years.

2. When does Section 84(1) apply?
It applies when an assessee’s land, building, or right therein forming part of an industrial undertaking is compulsorily acquired, and the assessee reinvests in a new land, building, or right therein for shifting, re-establishing, or setting up another industrial undertaking.

3. What are the conditions for availing benefit under Section 84(1)?
The original asset must have been used for business in the two years immediately before transfer, and the assessee must purchase or construct a new asset within three years from the date of transfer.

4. What happens if the capital gain exceeds the cost of the new asset?
The excess capital gain over the cost of the new asset shall be charged to tax under section 67, and the cost of the new asset for future capital gains calculation (if transferred within three years) shall be taken as nil.

5. What happens if the capital gain is equal to or less than the cost of the new asset?
No capital gain shall be charged under section 67, but for computing future capital gains (if transferred within three years), the cost of the new asset shall be reduced by the amount of the earlier exempted capital gain.

6. What is the time limit for investing the capital gains into a new asset?
The investment must be made within three years from the date of transfer of the original asset.

7. What if the assessee does not utilise the capital gains before filing the return?
The unutilised amount must be deposited in a specified bank or institution before the due date for filing the return under section 263.

8. Where should the unutilised capital gain be deposited?
It should be deposited in a specified bank or institution under a scheme notified by the Central Government.

9. By when must the deposit be made?
The deposit must be made not later than the due date applicable for filing the return of income under section 263(1).

10. What documentation is needed regarding the deposit?
Proof of the deposit must be submitted along with the return of income on or before the due date for filing.

11. How is the cost of the new asset computed when part of the capital gains is deposited?
The amount utilised for purchasing or constructing the new asset plus the amount deposited shall be deemed to be the cost of the new asset.

12. What if the deposited amount is not fully utilised within three years?
The unutilised amount shall be taxed under section 67 as income of the tax year in which three years from the date of transfer expire.

13. Can the assessee withdraw the unutilised deposited amount?
Yes, the assessee can withdraw the unused amount as per the scheme notified by the Central Government.

14. What is considered an “original asset” under Section 84?
An original asset refers to the land, building, or right therein forming part of an industrial undertaking, which was compulsorily acquired and used for business in the two years preceding the transfer.

15. What is a “new asset” under Section 84?
A new asset refers to the land, building, or right therein purchased or constructed for shifting, re-establishing the existing undertaking, or setting up another industrial undertaking.

16. Is partial investment in a new asset allowed?
Yes, but any excess of capital gain over the cost of the new asset will be taxable under section 67.

17. What happens if the new asset is sold within three years?
For computing capital gains on such sale, either the cost will be considered nil or reduced by the exempted capital gain, depending on whether the original capital gain exceeded or was equal to or less than the cost of the new asset.

18. What section governs taxation of the unutilised deposit after three years?
Section 67 governs the taxation of the unutilised deposited amount after three years.

19. From which date is Section 84 effective?
Section 84 is effective from 1st April, 2026.

20. Does Section 84 apply to voluntary sales of land or building?
No, Section 84 applies only to transfers by way of compulsory acquisition under any law.