Exemption Under Section 54GA

Notwithstanding anything contained in Section 54G of the Income tax Act,1961, Section 54GA provides for an exemption from capital gain arising on transfer of a capital asset, being plant or machinery or land or building or any rights in building or land used for the purpose of business in an industrial undertaking situated in an urban area to an industrial undertaking situated in any special economic zone.

This article explains everything you need to know about Section 54GA

Conditions the Assessee need to satisfy to Claim Exemption u/s 54GA

The following are the conditions to be satisfied:

1. Applicability- This is applicable to all persons.
2. Type of Capital Gain Eligible for Exemption- Both the short term capital gain and long term capital gain are eligible for exemption under this section.
3. Nature of Capital Gain- This section provides for exemption on capital gain arising on transfer of capital asset being plant or machinery or land or building or any rights in building or land used for the purpose of business in an industrial undertaking situated in an urban area.
4. Nature of Investment to be made- The Assessee is required to reinvest the amount in shifting of the industrial undertaking from the urban area to an industrial undertaking situated in any special economic zone within a period of 1 year before or 3 years after the date of transfer for the purpose specified below-

1. Purchased machinery or plant for the purposes of business of the industrial undertaking in the Special Economic Zone to which the said undertaking is shifted.
2. Acquired building or land or constructed building for the purposes of his business in the Special Economic Zone .
3. Shifted the original asset and transferred the establishment of such undertaking to the Special Economic Zone.
4. Incurred expenses on such other purposes as may be specified in a scheme framed by the Central Government for the purposes of this section.

Amount of Exemption

If all the conditions are satisfied by the assessee, then, exemption shall be provided on the following basis:

1. The amount invested in plant or machinery or land or building for shifting the industrial undertaking from urban area to special economic zone (or)
2. The amount of capital gain

Whichever is lower.

Lock-in period and The Consequence of Transferring the New Capital Asset

The newly acquired capital assets cannot be transferred within a period of three years from the date of investment made. However, in case where the assessee transfers the newly acquired capital assets before the expiry of a period of three years, then, the exemption allowed under section 54GA 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 54GA of the Income Tax Act.

Capital Gain Deposit Account Scheme

If the amount is not fully invested in acquiring new assets within the last date of furnishing of return under section 139, 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 i.e three years. 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.