Section 54GA: Capital Gains Exemption on Shifting an Industrial Undertaking to an SEZ

What is Section 54GA?

Section 54GA provides an exemption from capital gains tax on transfer of specified business assets used by an industrial undertaking in a notified urban area when the transfer occurs in the course of, or as a consequence of, shifting the undertaking to an SEZ. It operates notwithstanding Section 54G, which addresses relocation outside urban areas more generally.

Important legal definitions

Industrial undertaking

The business establishment whose machinery, plant, building or land is relocated. Eligibility depends on the actual undertaking and the assets used in its business.

Original asset

Machinery, plant, building, land, or rights in a building or land used for the undertaking's business in the relevant urban area and transferred as part of the shift.

Special Economic Zone (SEZ)

As defined in Section 2(za) of the Special Economic Zones Act, 2005: an SEZ notified under the proviso to Section 3(4) or under Section 4(1), including a Free Trade and Warehousing Zone, and an existing SEZ.

Urban area

An area within municipal corporation or municipality limits that the Central Government declares an urban area for this provision, considering population, concentration of industries, planning needs and other relevant factors. Municipal status alone is not conclusive without the applicable declaration.

Eligibility and qualifying relocation expenditure

The transfer must arise from relocating the industrial undertaking from the qualifying urban area to an SEZ. Within one year before or three years after the transfer, eligible expenditure may include:

1. Buying machinery or plant for the undertaking's business in the destination SEZ.
2. Acquiring land or a building, or constructing a building, for that business in the SEZ.
3. Shifting the original assets and transferring the establishment to the SEZ.
4. Other relocation expenses expressly specified in a scheme framed by the Central Government.

Only qualifying costs linked to the statutory purposes should be counted. Preserve invoices, payment proofs, sale deeds, asset registers, relocation records, SEZ documentation and evidence of the applicable urban-area declaration.

How the capital gains exemption is calculated

The exempt amount is generally the lower of the eligible capital gain and the qualifying relocation cost, subject to the section's conditions. Any excess gain is taxable under the applicable capital gains provisions.

This example assumes every statutory condition is satisfied. The provision covers eligible capital gains; it is not a blanket exemption for all proceeds from selling industrial property.

Transfer of replacement assets within three years

Section 54GA has special cost-of-acquisition adjustments when a replacement asset is transferred within three years of its purchase, acquisition, construction or transfer, as applicable. Where the original gain exceeded eligible expenditure, the statutory cost treatment may result in a nil cost for the replacement asset. Where the original gain was fully relieved, the replacement asset's cost is reduced by the relieved gain. These rules affect the gain on the subsequent disposal; they should not be confused with an automatic recapture of the entire earlier exemption.

Capital Gains Accounts Scheme and unutilised amounts

Under Section 54GA(2), capital gains not already appropriated to qualifying expenditure or utilised before filing the return must be deposited in the prescribed account before filing the return and no later than the due date under Section 139(1), in accordance with the applicable notified scheme. Amounts utilised and validly deposited are considered when applying the exemption.

If a deposited amount is not used for qualifying expenditure within the three-year period, the unutilised amount becomes chargeable as capital gains in the year that period expires, subject to the applicable statutory rules. The balance may be withdrawn under the scheme. Actual requirements should be verified for the relevant year, including changes in filing procedures.

Section 54G versus Section 54GA

The SEZ-specific provision expressly operates notwithstanding Section 54G. Each claim must satisfy the relevant statutory requirements.

Official legislation and resources

• Income Tax Department: Income-tax Act, 1961 (select Section 54GA and relevant assessment year).
• Income Tax Department: e-Filing portal (forms, return filing and guidance).
• India Code: Central Acts (search for the Income-tax Act, 2025 and the Special Economic Zones Act, 2005).
• Government of India: SEZ information portal (SEZ notifications and guidance).

Official portals may reorganise their section-specific URLs; verify the text, notifications and commencement dates applicable to the transaction.

Frequently asked questions

Can the destination SEZ be located inside an urban area?

Yes. Section 54GA expressly covers a shift to an SEZ whether the zone is developed in an urban area or another area.

Must the transferred asset be long-term?

The provision refers to capital gains on qualifying capital assets used for the undertaking and is not framed exclusively around long-term assets. The applicable holding-period and computation rules still determine the character and amount of gain.

Does buying any property in an SEZ qualify?

No. The expense must be within the purposes and time limits of Section 54GA and connected with shifting the industrial undertaking.

What if the relocation is not completed by the statutory deadline?

Expenditure and deposits not applied as required may lose the intended tax benefit, and unused deposits may become taxable under Section 54GA(2).

Original Section 54GA text and legislative note

The following statutory extract and amendment note are retained from the earlier webpage for reference. Confirm the official enacted text and amendments for the relevant year.