The present article briefly covers the exemption provisions of section 54GA of the Income Tax Act.

As per provisions of section 54GA, any capital gain arisen on the transfer of the capital assets (being machinery or plant or building or land) of an industrial undertaking which is situated in an urban area would be exempt. However, the exemption is available only if the capital gain is on account of shifting of industrial undertaking from the urban area to any special economic zone.

Conditions to be satisfied for claiming exemption under section 54GA

The following table briefly summarizes the conditions which the claimant needs to satisfy for claiming exemption under section 54GA of the Income Tax Act

Category of the persons who are eligible for exemption under section 54GA All the categories of persons can avail exemption under section 54GA.
Type of capital gain which is eligible for exemption Both short term capital gain and long term capital gain are eligible for exemption under section 54GA.
Type of capital asset transferred Following transfer of the capital asset is eligible, provided the transfer is made by an industrial undertaking situated in an urban area –

  • Plant or machinery
  • Land or building
  • Any rights in land or building used for business purpose.
Amount of capital gain invested in The amount can be invested for shifting the industrial undertaking situated in an urban area to Special Economic Zone (developed in an urban or rural area) for the following specified purpose –

  • For purchasing of plant or machinery in the industrial undertaking shifted in Special Economic Zone.
  • For acquiring land or purchasing/ constructing building for the purpose of the business of an industrial undertaking shifted in Special Economic Zone.
  • Any expenditure incurred for shifting of the industrial undertaking in Special Economic Zone.
  • Any other expenditure as specified by the Central Government.
The time period for investing the amount The amount can be invested 1 year before or 3 years after the date of transfer.
Lock-in period of the newly acquired / purchased / constructed / transferred asset The claimant cannot transfer the new asset before the period of three years from the date of acquisition / construction or transfer.

Amount of exemption allowable under section 54GA of the Income Tax Act

On satisfying all the prescribed criteria’s, the claimant would be eligible for lower of the following amount as an exemption under section 54GA –

  • An amount invested into land or building or plant or machinery for shifting of industrial undertaking from an urban area to Special Economic Zone; or
  • An amount of capital gain.

Withdrawal of exemption under section 54GA of the Income Tax Act

Provisions of section 54GA restrict the claimant from transferring the newly acquired assets for a period of three years. Still, if the claimant transfers the newly acquired assets before the completion of three years, then, the exemption allowed under section 54GA would be withdrawn. The effect of withdrawal of exemption would be given at the time of calculating the capital gain, of the new capital asset so transferred, in the following manner –

Situation Effect of withdrawal of exemption
When the amount of capital gain is greater than the amount invested in acquiring / purchasing / transferring the new capital asset. Cost of acquisition of the newly acquired asset would be considered as NIL.
When the amount of capital gain is equal to or less than the amount invested in acquiring / purchasing / transferring the new capital asset. Cost of acquisition of the newly acquired asset would be considered as following –

Cost of acquisition (-) Amount of capital gain exempted

Capital Gain Deposit Account Scheme

The provisions of section 54GA allow the claimant to re-invest the capital gain amount until the period of three years after the date of transfer. However, if the amount of capital gain is not fully invested before the last date of filing of the income tax return, then the claimant is required to deposit the unutilized amount in the ‘Capital Gain Deposit Account Scheme’.

The amount deposited into the account scheme can be utilized by the depositor for specified investment within a specified period. If the depositor fails to utilize the amount within a given period, then, the balance unutilized amount would be taxable in the previous year in which the time period of three years 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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