[Section 54G]- Exemption of Capital Gains on Shifting Industrial Undertaking from Urban Area

Section 54G of the Income Tax Act, 1961, provides tax exemption on capital gains arising from the transfer of plant, machinery, land, or building when an industrial undertaking is relocated from an urban area to a rural/non-urban area.

1. Eligibility Conditions

✅ Applicable to: Businesses relocating industrial units (manufacturing, processing, etc.).

✅ Asset Type:

• Land or building used for the industrial undertaking.
• Plant, machinery, or other business assets.

✅ Transfer Reason: Must be solely for shifting the unit from an urban to a non-urban area.

✅ Reinvestment Time Limit:

• Purchase new assets: Within 1 year before or 3 years afterthe transfer.
• Construction of new assets: Must be completed within 3 years.

2. Exemption Calculation

The exemption is the lower of:

• Capital gain from the transfer, or
• Amount reinvested in new assets(land, building, plant, machinery).

Example:

• Sale of Urban Factory (LTCG): ₹2 Crore
• Reinvestment in Rural Factory: ₹1.8 Crore
• Exemption: ₹1.8 Crore (remaining ₹20L taxable).

3. Key Conditions & Restrictions

✔ Lock-in Period: The new assets cannot be sold within 3 years (else exemption is revoked).

✔ Usage Requirement: New assets must be used for the same business in the rural area.

✔ Capital Gains Deposit Scheme (CGDS): If unable to reinvest, deposit in a CGDS account (must be utilized within 3 years).

4. Comparison with Other Industrial Exemptions

5. Compliance & Documentation

✔ Disclose in ITR-3/ITR-4 (for businesses).

✔ Proof Required:

• Sale agreementof old assets.
• Purchase/construction proofof new assets.
• Approval from authorities(for relocation).

6. Recent Changes (2024 Budget)

• Extended Time Limit: CBDT may notify additional timefor completion in special cases.
• Green Industry Incentive: Additional 10% depreciationif new unit uses renewable energy.