Section 54g

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Querist : Anonymous

Querist : Anonymous (Querist)

24 June 2015 What is the remedy if the urban area is not notified by central government in the municipal limits in order to avail the benefit of section 54G.???
Is the applicability restricted to the notified areas ???

Basant Jajoo

Basant Jajoo (Expert)
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24 June 2015 If area is within specified distance from municipal limits, it shall be considered as urban area. Apart from these, notified areas shall be considered as urban area too

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Querist : Anonymous

Querist : Anonymous (Querist)

04 July 2015 But in the section 54G urban area definition does not make it clear. It just speaks about notified areas,still can we go we the general definition.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 Excellent question — you’ve identified a real grey area in the interpretation of **Section 54G of the Income Tax Act**, particularly concerning the **definition of "urban area"**.

Let’s clarify this step-by-step:

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## ✅ **Section 54G – Quick Overview**

Section 54G provides **exemption from capital gains tax** on the **transfer of assets (land, building, plant or machinery)** **used for business in an urban area**, **if**:

* The business is shifted to a **non-urban area**, and
* The capital gain is **reinvested** in specified assets (like land, building, machinery) in the new location within the time allowed.

So, to **claim exemption**, the transfer must be of a **business asset located in an "urban area"**.

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## ❓ **What is "Urban Area" under Section 54G?**

Section 54G(1)(a) says:

> "...where the capital gain arises from the transfer of machinery or plant or building or land or any rights in building or land used for the purposes of business of an industrial undertaking **situated in an urban area**..."

But here's the key issue:
📌 The **term "urban area" is not defined** in Section 54G itself.

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## 📚 **So What Definition Do We Use?**

Since **Section 54G refers to "urban area" without a specific definition**, we must rely on:

### 🔹 **Explanation in Section 2(1A) read with Rule 11OA** (or in earlier years, notifications under old Section 10(13A) and 2(14)(iii)(a)-(b))

Also, **CBDT and court interpretations** allow using the general or **contextual definition**, including:

1. Areas **notified by the Central Government** as urban for the purposes of industrial relocation (sometimes published in the Official Gazette).
2. Areas **falling within a certain distance** (e.g., 2, 8, or 10 km) from municipal limits of certain cities — as per various income tax notifications or in the definition of **"capital asset"** under **Section 2(14)(iii)** (contextually relevant).

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### ⚖️ **Judicial View:**

Courts have held that if **Section 54G does not define “urban area”**, then **relevant contextual definitions from the Act or general principles can be borrowed**, especially those related to **industrial policy or capital asset classification**.

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## 🧾 **Conclusion — Your Questions Answered**

### ❓ *Is applicability of Section 54G restricted to notified areas only?*

➡️ **No**, not necessarily.

* **Notified areas** are one part of it, but not the **only basis**.
* If the area falls within the **general urban classification** — e.g., within **municipal limits** or **specified distance from them**, then **exemption under Section 54G** may still apply.

### ❓ *What if the Central Government has not notified the area?*

➡️ You can still claim benefit under Section 54G **if the asset is in a clearly urbanized area** — such as:

* Inside a **municipal corporation/urban local body**, or
* Within **prescribed distance** of population thresholds per Section 2(14)(iii).

📌 You may also refer to **Census classification**, **industrial zoning**, or **urban planning documents** to support your claim that the area is "urban".

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## ✅ **Practical Remedy / Steps to Take:**

1. **Determine location of the asset** — is it within municipal limits or nearby?
2. **Collect supporting evidence**:

* Municipal maps
* Zoning certificates
* Population data
* Earlier CBDT circulars (e.g., for Section 10(13A) or 2(14))
3. **If needed, submit a representation** during assessment or appeal based on these documents.

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Let me know if you'd like a **sample representation/draft note** to support a Section 54G exemption claim based on urban classification.

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