Introduction

The Income-tax Act allows exemption from capital gains tax if the amount of capital gains or sale consideration, as the case may be, is further invested in specified new assets.

These exemptions are as under the following sections:
a) Section 54- Capital Gain arising from the transfer of residential house property
b) Section 54B– Capital Gain arising from the transfer of land used for agricultural purpose
c) Section 54D– Capital Gains on compulsory acquisition of land and building, forming part of industrial undertaking
d) Section 54EC– Capital Gain not be charged on investment in certain bonds
e) Section 54EE– Capital Gain not to be charged on investment in units of a specified fund
f) Section 54F – Capital Gain on transfer of a long term capital asset other than a house property
g) Section 54G- Capital Gain arising on transfer of assets in case of shifting of industrial undertaking from the urban area
h) Section 54GA- Capital Gain arising on transfer of assets in case of shifting of industrial undertaking from the urban area to any Special Economic Zone
i) Section 54GB​- Capital Gain on transfer of residential property

This Article quickly explain Section 54GA of Income-tax Act which provides exemption in respect of capital gains arising from transfer of assets of industrial undertaking from urban area to any special economic zone.

What is Section 54GA of the Income Tax Act?

Section 54GA​ is a provision in the Income-tax Act that provides exemption from capital gains arising from the transfer of assets in the course of shifting an industrial undertaking from an urban area to a Special Economic Zone (SEZ). The exemption is allowed if the amount of capital gains is invested in new machinery, plant or building in the SEZ where the undertaking is shifted. ​

What type of capital asset is qualified for Section 54GA exemption?

​The capital gain must be used for the specified purposes within 1 year before or 3 years after the date of transfer. Any capital gain that has not been utilized within 1 year prior to the date of transfer or before the due date of submitting the income tax return for the intended purposes, should be deposited into a capital gains account at a bank prior to the due date for submitting the income tax return. ​

Who can claim exemption under Section 54GA?

​The exemption is available to all assesses, including individuals, HUFs, firms, or companies, if the industrial undertaking, located in an urban area, is shifted to a Special Economic Zone. ​

What type of new asset must be acquired or constructed to claim the Section 54GA exemption? 

​The exemption is available if a capital asset, such as plant, machinery, land, or building, or any right in land or building used for the purpose of an industrial undertaking situated in an urban area, is transferred as part of the shifting of the industrial undertaking to a Special Economic Zone. ​

What is the time limit for investing in the new asset for Section 54GA exemption?​

To claim this exemption, the capital gain arising from the transfer of the original asset should be used to purchase new plant or machinery, purchase or construct a building, shift the original asset and its establishment, or incur expenses on other purposes as specified in a scheme framed by the Central Government for this purpose. ​

What is the maximum amount of exemption allowed under section 54GA?

​ The amount of exemption will be the lower of the following:

(a) Amount of capital gains, whether long-term or short-term; or

(b) Aggregate of amount invested in new assets, expenses on transfer or establishment and amount deposited in deposit scheme.