Section 54G provides for an exemption from 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.
This article explains everything you need to know about Section 54G.
Conditions the Assessee need to satisfy to Claim Exemption u/s 54G
The following are the conditions to be satisfied:
- Applicability- This is applicable to all persons.
- Type of Capital Gain Eligible for Exemption- Both the short term capital gain and long term capital gain are eligible for exemption
- 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.
- 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 a rural area within a period of 1 year before or 3 years after the date of transfer for the purpose specified below-
- 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
- incurred expenses on such other purpose 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:
- The amount invested in plant or machinery or land or building for shifting the industrial undertaking from urban area to rural area (or)
- 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 on which investment is 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capital assets before the expiry of a period of three years, then, the exemption allowed under section 54G would be withdrawn.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 54G 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.