Section 54G – Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from Urban area to Non-Urban area

Section 54G – Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from Urban area to Non-Urban area


Nature of Transfer covered under Section 54G

The section 54G covers the transfer of a capital asset due to shifting from urban areas to a non-urban area.

For the purpose of this section, the industrial undertaking means, machinery, or plant or building or land or any rights in building or land which is used for the purposes of the business.

For this section, the phrase, “urban area” means any such area within the limits of a municipal corporation or municipality as the Central Government may, having regard to the population, concentration of industries, need for proper planning of the area and other relevant factors, by general or special order, declare to be an urban area for the purposes of this sub-section.


Who can claim the benefit of the exemption?

The benefit of section 54G is available to all the assesses.


What should be the period of holding or usage of the property sold?

There is no precondition of holding the industrial undertaking for any specific time. Hence, it can be short term or long term.


What is the criterion for and amount of tax that can be exempted?

The criterion for exemption is reinvestment of capital gains from the sale proceeds of the residential house sold.

The amount of exemption shall be as follows:

Scenarios Amount of Exemption Cost of New Asset if sold within Lock-in Period*
Capital Gains < Amount Reinvested Full amount of Capital Gains shall be exempt Cost shall be reduced by the amount of capital gains for which exemption was claimed earlier.
Capital Gains > Amount Reinvested Difference between Capital Gains and amount reinvested shall be taxable under head Income from Capital Gains Cost of the new asset shall be NIL


*Lock-in period for New Property Purchased or constructed: The said property cannot be transferred for a period of 3 years.


What are the conditions for claiming this exemption?

The exemption will be available only when the assessee has within a period of one year before or three years after the date on which the transfer took place:

  • purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to which the said undertaking is shifted.
  • acquired building or land or constructed building for the purposes of his business in the said area.
  • shifted the original asset and transferred the establishment of such undertaking to such area; and
  • incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government for the purposes of this section.


Concept of Capital Gains Account Scheme

In case you could not utilize the amount as per the prescribed conditions up to the date of filing the Income tax return under section 139 (1). You still have the option to get away with the capital gains by depositing the amount of capital gains in a specified account with the banks named as ‘Capital Gains Account Scheme’.

The purpose of keeping the money in this account is to ensure that double benefit should not be given to any assessee i.e. exemption as well as liberty to use money as per choice. The amount deposited in this account can only be used for the purpose prescribed. This money is to be utilized within a period of 3 years from the date of transfer of original asset. In case, there is any unutilized amount is there, the same shall be taxable as Capital Gains in the previous Year when the time of 3 years expires.


Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in what so ever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.