Section 84 of the Income-tax Act, 2025 — Capital Gains Exemption on Compulsory Acquisition of Industrial Land & Buildings

In plain language

What Section 84 actually deals with

Important clarification: Section 84 of the Income-tax Act, 2025 is NOT about ordinary agricultural land. It is the re-numbered successor to Section 54D of the Income-tax Act, 1961 and deals with capital gains on the compulsory acquisition of land or buildings forming part of an industrial undertaking. (Relief for compulsory acquisition of urban agricultural land is a separate exemption — the old Section 10(37) — while re-investment relief for agricultural land is Section 83, the successor to Section 54B.)

The purpose of Section 84 is simple and fair: if the Government or an acquiring authority forcibly takes over the land or building of a running factory/industrial unit, the owner should not be pushed into a tax bill on a sale they never chose. So the law lets them defer/exempt the capital gain if they use the compensation to re-establish or shift the undertaking.

Who can claim it

• Any assessee — Individual, HUF, Firm, LLP, or Company. Unlike the agricultural-land reliefs (which are limited to individuals/HUFs), Section 84 is open to all taxpayers.
• The asset must be land, building, or any right in land/building that formed part of an industrial undertaking.

Key conditions you must satisfy

• Compulsory acquisition: The transfer must be by way of compulsory acquisition under any law (not a voluntary sale).
• Two-year use test: The land/building must have been used by the assessee for the business of that industrial undertaking during the two years immediately preceding the date of transfer.
• Three-year re-investment window: Within 3 years from the date of transfer, the assessee must purchase other land/building or construct a building for the purpose of shifting or re-establishing the said undertaking (or setting up a new one).
• Capital Gains Account Scheme (CGAS): Any gain not re-invested before the due date for filing the return (under Section 263(1) of the 2025 Act) must be deposited in a specified bank/CGAS account, and that deposit is treated as utilisation.

How much is exempt

The exemption is the lower of (a) the capital gain, or (b) the cost of the new asset (including CGAS deposit). If the whole gain is re-invested, the entire gain escapes tax under Section 67 (the charging section for capital gains in the 2025 Act). If only part is re-invested, only that part is exempt and the balance is taxable.

Interaction with related sections

• Section 67 is the charging section — Section 84 carves out an exemption from it.
• Section 83 (old 54B) gives similar relief for agricultural land; do not confuse the two.
• Section 82 (old 54) and Section 85 (old 54EC — bonds) are the other main capital-gains rollovers.
• Section 194LA governs TDS on compensation for compulsory acquisition.

Practical implications (the clawback trap)

• If the new asset is sold or transferred within 3 years of its purchase/construction, the exemption is effectively reversed — its cost is reduced by the exempted gain, inflating the taxable gain on that later sale.
• If the CGAS deposit is not utilised within 3 years, the unused amount is charged as capital gains in the year the 3-year period expires.
• Short-term gains also qualify — the relief is not restricted to long-term capital assets, so long as the 2-year business-use test is met.

In short, Section 84 rewards genuine re-establishment of an industrial unit that was taken away by force, while penalising anyone who tries to pocket the compensation without actually re-investing.