Chapter IV - Computation of Total Income
Section 84
Section 84: capital gains on compulsory acquisition of lands and buildings not to be charged in certain cases
Section 84 exempts capital gains where land or a building belonging to an industrial undertaking is compulsorily acquired, and the assessee reinvests within three years to shift, re-establish, or set up another industrial undertaking. It is the successor to Section 54D of the old Act, and uses the same deposit-scheme mechanism as the other reinvestment exemptions in this Chapter.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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.
(2) If the capital gains referred to in sub-section (1) 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 in a specified bank or institution and utilised as per the scheme notified by the Central Government; (b) such deposit shall be made before the filing of the return not later than the due date applicable in the case of the assessee for filing the return of income under section 263(1); and (c) the proof of deposit shall be submitted along with such return.
(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.
(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 such unutilised amount in accordance with the scheme referred to in sub-section (2).
Introduction
Section 84 concerns compulsory acquisition of land, a building or related rights used in an industrial undertaking. Reinvestment in replacement premises for relocation or re-establishment can defer capital gains, subject to the three-year period and deposit rules.
Key takeaways
Compulsory industrial acquisition
Qualifying capital gain from compulsory acquisition of an industrial undertaking’s land or building can be relieved when replacement land or building is obtained within three years for shifting, re-establishment or a new undertaking.
Unused gain
Unspent gain must enter the specified deposit scheme by the return due date; relief depends on the replacement cost and can be recaptured on early transfer or non-use.
Who qualifies and the basic mechanism
Section 84(1) applies where an assessee has capital gains from a compulsory acquisition under any law, of land or building (or any right in land or building) forming part of an industrial undertaking, which was used by the assessee for that undertaking's business in the two years immediately preceding the transfer (the "original asset"). If, within three years after the transfer, the assessee purchases other land/building (or a right in it) or constructs another building, for shifting or re-establishing the undertaking or setting up another industrial undertaking (the "new asset"), then:
- If the capital gains exceed the cost of the new asset, the excess is taxed under Section 67, and the cost of the new asset is treated as nil for computing gains if it is sold within three years of purchase/construction.
- If the capital gains are equal to or less than the cost of the new asset, no capital gains are taxed, and the cost of the new asset is reduced by the amount of the capital gains for computing gains if it is sold within three years of purchase/construction.
The deposit scheme for unutilised gains
If the capital gains are not utilised to purchase/construct the new asset before the assessee files the return of income under Section 263, Section 84(2) requires the unutilised amount to be deposited in a specified bank/institution under the Central Government's notified scheme, before the return-filing due date under Section 263(1), with proof of deposit submitted along with the return.
Section 84(3) treats the amount already utilised for the new asset, plus the deposited amount, as the cost of the new asset.
If the deposited amount is not fully utilised for purchase/construction of the new asset within the three-year period in Section 84(1), Section 84(4) taxes the unutilised balance under Section 67 as income of the year in which those three years from the original transfer expire, and the assessee can withdraw the unutilised amount as per the deposit scheme.
Link premises to the undertaking
The acquired asset must have formed part of the assessee's industrial undertaking and been used in its business in the two years before transfer. The new land, building or rights must support shifting, re-establishing or setting up an industrial undertaking.
Step-by-step flow for applying Section 84
- 1
Did capital gains arise from compulsory acquisition under any law of land, building or a right in them, forming part of an industrial undertaking?
- No: Section 84 does not apply.
- Yes: Go to the next step.
- 2
Was the asset used for the undertaking's business in the two years immediately before transfer?
- No: Section 84 does not apply.
- Yes: Go to the next step.
- 3
Within three years, was other land, building or right purchased, or a building constructed, to shift or re-establish the undertaking or set up another?
Any amount not used before filing the return must be deposited in the notified scheme by the due date under Section 263(1), with proof attached.
- 4
Compare the capital gain with the cost of the new asset
- Gain exceeds cost: Excess charged under Section 67.
- Gain equal to or less than cost: Nothing charged.
- 5
Track the deposit and the new asset
Unused deposit is taxed in the year in which three years from the transfer expire; selling the new asset within three years reduces its cost (or makes it nil).
Practical checklist
Do
- Keep compulsory-acquisition, industrial-use and compensation documents.
- Track the three-year replacement period and any Section 89 receipt-date extension if compensation arrived after transfer.
Avoid
- Do not apply the provision to an ordinary voluntary sale.
- Do not use an unrelated property purchase as the replacement industrial asset.
Illustrative example
Worked example: factory land acquired for a highway
Hypothetical facts (illustration only, not a real taxpayer): A manufacturer's factory land is compulsorily acquired, giving capital gains of ₹2,00,00,000. It had been used for the factory's business for many years. The manufacturer plans a new factory building elsewhere. Before filing the return it spends ₹60,00,000 and deposits ₹1,40,00,000 in the notified scheme. Within three years it uses only ₹1,00,00,000 of the deposit.
Deemed cost
₹60,00,000 + ₹1,40,00,000 = ₹2,00,00,000 (Section 84(3)); this equals the gain, so nothing is charged in the year of transfer.
Unused deposit
₹1,40,00,000 − ₹1,00,00,000 = ₹40,00,000 not utilised within three years.
Charge
₹40,00,000 is charged under Section 67 in the tax year in which three years from the transfer expire; the manufacturer may withdraw it under the scheme.
Outcome
- Of the ₹2,00,00,000 gain, ₹1,60,00,000 is finally relieved and ₹40,00,000 is taxed later.
- If the new building is sold within three years of its construction, Section 84(1) reduces its cost (or treats it as nil) when computing the gain on that sale.
Glossary
- Compulsory acquisition
- Transfer under an acquisition law rather than an ordinary negotiated sale.
- Industrial undertaking
- The business undertaking whose land, building or rights were acquired.
Frequently asked questions
What kind of asset does Section 84 cover?
Land or building (or a right in land or building) forming part of an industrial undertaking, compulsorily acquired under any law, and used by the assessee for that undertaking's business in the two years before the acquisition, per Section 84(1)(a).
How long do I have to reinvest the compensation to claim this exemption?
Within three years after the date of the transfer, to purchase land/building or construct a building for shifting, re-establishing, or setting up another industrial undertaking, per Section 84(1)(b).
What if I can't reinvest the compensation before filing my return?
You must deposit the unutilised amount in a specified bank/institution under the notified deposit scheme before the return filing due date, and submit proof of deposit with the return, per Section 84(2).
Need help applying this provision to your situation?
Get expert help claiming your industrial land compulsory acquisition exemptionLast updated 10 October 2026