Section 54G of the Income Tax Act provides exemption towards capital gain arisen on the transfer of capital assets like plant or machinery or land or building which is forming part of an industrial undertaking being situated in an urban area. Such transfer should be on account of shifting of industrial undertaking from the urban area to a rural area.

The present article explains all the provisions attached with the exemption available under section 54G of the Income Tax Act.

Capital gain

Essential conditions which claimant needs to satisfy to claim section 54G exemption

For claiming exemption under section 54G of the Income Tax Act, the claimant needs to satisfy the following conditions –

1. Category of the person eligible for exemption –

An exemption under section 54G is available to all the categories of persons.

2. Type of capital gain eligible for exemption –

An exemption under section 54G is available to both short term capital gain and long term capital gain.

3. Nature of capital gain transferred –

Section 54G exempts capital gain arisen on account of transfer of plant or machinery or building or land or any rights in land or building which is being used for the business purpose of an industrial undertaking situated in an urban area.

4. Nature of re-investment –

The claimant is required to re-invest the amount in shifting of the industrial undertaking from the urban area to a rural area. The re-investment is to be made within a period of 1 year before or 3 years after the date of transfer for the purpose specified below –

  • For purchasing of new plant or machinery for the business purpose of industrial undertaking shifted in a rural area.
  • For purchasing land or building or constructing a building for the business purpose of industrial undertaking shifted in a rural area.
  • Expenditure incurred towards shifting of the old industrial undertaking and establishing the same in the rural area.
  • Incurring any other expenditure as specified by the Government.

Amount of exemption available under section 54G of the Income Tax Act

If all the above specified conditions / criteria are satisfied, then the claimant is eligible for availing lower of the following amounts as an exemption –

  • An amount invested into land and building and plant and machinery for shifting of industrial undertaking in a rural area; or
  • The amount of capital gain.

A consequence of transfer of newly acquired assets

Provisions restrict the assessee from transferring the newly acquired asset for a period of three years. However, in case the assessee transfers the assets before the expiry of a period of three years, then, the exemption allowed under section 54G would be withdrawn.

In case of transfer and withdrawal of exemption, at the time of calculating the capital gain of newly transferred assets, the cost of acquisition of the newly transferred asset shall be reduced by the amount of exemption claimed under section 54G of the Income Tax Act.

Capital Gain Deposit Account Scheme –

If the amount is not fully invested in acquiring new asset within the last date of furnishing of return, then the assessee is required to deposit the balance amount into the Capital Gain Deposit Account Scheme.

The assessee needs to utilize the deposited amount within the specified period. However, in case the amount is not utilized within the given time period, then, the unutilized amount would be taxable in the previous year in which the time period expires.

Read Also:-

1 Exemption under section 54GB of Income Tax Act 1961
2 Section 54GA Exemption under Income Tax Act, 1961
3 Capital gain exemption under section 54G of Income Tax Act, 1961
4 Section 54F Capital Gain Tax Exemption
5 Section 54EE Tax Exemption on long term capital gain
6 Section 54EC Exemption available on investment in certain specified bonds
7 Section 54D Exemption from capital gain on compulsory acquisition of land or buildings forming part of industrial undertaking
8 Exemption from capital gain on transfer of agricultural land – Section 54B
9 Exemption available under section 54 of Income Tax Act

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