Section 54GA of ITA, 1961 : Section 54Ga: Exemption Capital Gains On Transfer Of Assets In Cases Of Shifting Of Industrial Undertaking From Urban Area To Any Special Economic Zone

Explanation using Example

Imagine a company named XYZ Pvt. Ltd. operates an industrial unit manufacturing electronic components in an urban area of Mumbai. Due to various reasons, including the benefits provided by the government, the company decides to shift its operations to a Special Economic Zone (SEZ) in Gujarat. In the process, XYZ Pvt. Ltd. sells its old factory land and building in Mumbai, resulting in a substantial capital gain.

Under Section 54GA of the Income-tax Act, 1961, XYZ Pvt. Ltd. can claim exemption from paying tax on the capital gains if it fulfills certain conditions. Within a year before or three years after the sale, the company:

• Purchases new machinery for the SEZ-based unit;
• Acquires land or constructs a new building for the unit in the SEZ;
• Shifts the original machinery and business operations to the SEZ;
• Incurs expenses on other specified purposes for setting up the unit in the SEZ.

If the capital gain from the sale is more than the cost of the new investments and expenses in the SEZ, the difference will be taxable. However, if the gain is equal to or less than the new investment, the capital gain will not be taxed.

XYZ Pvt. Ltd. should also deposit any unutilized capital gain into a specified bank account if it's not used for the above purposes by the due date of filing the return. Failure to utilize this deposit for the intended purpose within three years will result in the deposit being taxed as income.