Tax Planning through Investments
SECTION 54GA
EXEMPTION FROM CAPITAL GAINS
ON TRANSFER OF ASSETS
IN CASES OF
SHIFTING OF INDUSTRIAL
UNDERTAKING FROM URBAN AREA
TO ANY SPECIAL ECONOMIC ZONE.
CA. Rajat Mohan
B.Com(H),ACA, ACS, DISA
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MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(A).TAXPAYER CATEGORY-SECTION 54GA
This exemption is available to all categories of
taxpayers
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(B). CONDITIONS- SECTION 54GA
1.Original asset transferred criteria — The capital gain arises from
the transfer of a capital asset, being machinery or plant or building or
land or any rights in building or land used for the purposes of the
business of an industrial undertaking.
2. Industrial undertaking is situated in an urban area.
3. Transfer of a capital asset has been effected in the course of, or
in consequence of, the shifting of such industrial undertaking to any
Special Economic Zone (whether developed in any urban area or any
other area).
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(B). CONDITIONS- SECTION 54GA
4. New asset acquired criteria — The assessee has within a
period of 1 year before or 3 years after the date on which the transfer
took place:
(a)
Purchased machinery or plant for the purposes of business of
the industrial undertaking in the special economic zone to which the
said undertaking is shifted;
(b)
Acquired building or land or constructed building for the
purposes of his business in the special economic zone;
(c)
Shifted the original asset and transferred the establishment of
such undertaking to the special economic zone; and
(d)
Incurred expenses on such other purposes as may be
specified in a scheme framed by the Central Government for the
purposes of this section.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(B). CONDITIONS- SECTION 54GA
5. Non-transfer of new asset for 3 years criteria —
New specified assets so purchased, acquired, or
constructed shall not be transferred within a period of 3
years from the date of its acquisition. However if these
new specified assets are transferred within this period
then for the purpose of computing capital gains for new
asset, the cost of acquisition shall be reduced by the
amount of the capital gain exempted under this section.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(B). CONDITIONS- SECTION 54GA
6. Capital Gains Accounts Scheme — The exemption is available of
the amount, which is utilized by assessee in the purchase of new
specified assets before the date of filing return of income, and the
amount, which is invested by the assessee in Capital Gains Accounts
Scheme 1988. In other words the amount which is not utilized by
assessee in the purchase of new specified assets before the date of
filing return of income, then it should be invested by the assessee in
Capital Gains Accounts Scheme, 1988 latest by the date of filing
return of income. The amount so invested by assessee in Capital
Gains Accounts Scheme, 1988 shall be utilized towards the purchase
or construction of new asset.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(B). CONDITIONS- SECTION 54GA
However wherein the amount deposited in the Capital Gains
Accounts Scheme, 1988 is not utilized (wholly or partly) for the
purchase of the new specified assets within the period specified,
then, the amount not so utilized shall be charged as the Long term
Capital Gains/ Short Term Capital Gains (this depends on original
capital gains) of the previous year in which the period of 3 years
from the date of the transfer of the original asset expires
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(C).AMOUNT OF EXEMPTION-SECTION 54GA
(i)If the amount of the capital gain is greater than the cost and
expenses incurred in relation to all or any of the specified
purposes – The amount so invested and expensed for specified
purposes shall be exempt.
(ii) If the amount of the capital gain is equal to, or less than, the
cost of the new asset - The entire capital gain shall be exempt
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(D). FORMULA FOR CALCULATING
EXEMPTION- SECTION 54GA
Exemption available shall be lower of the following:
1. Amount of capital gains; or
2. Amount invested as per the provisions of this section.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(E).
MEANING – SECTION 54GA
i)
“Special Economic Zone” shall have the meaning
assigned to it in clause (za) of section 2 of the Special Economic
Zones Act, 2005.
ii)
“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.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(F). STRUCTURING TAX- SECTION 54GA
•There is no stipulation in act, rules, notification or circular that new
asset so purchased cannot be mortgaged. In other words, loan can
be taken on the security of such new asset.
•There is no stipulation in act, rules any notification or circular that
new asset so purchased cannot be leased. In other words new
asset so purchased can be leased. However this step might require
due planning and structuring of the deal in the light of separate
provisions in financial lease and operating lease. This may involve
litigation also.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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(F).
STRUCTURING TAX- SECTION 54GA
•New asset so purchased cannot be transferred for a period of 3 years.
However we can use Section 47 and actually transfer the new asset
without there being any capital gains.
•There is no stipulation in act, rules, notification or circular that new asset
is to be purchased from own funds of assessee or from the sale
proceeds of original asset. Even if an assessee borrows required funds
and satisfies other conditions relating to investment in specified assets,
he is entitled to exemption.
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
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THANK YOU
Your comments and suggestions are of utmost
importance and are always welcomed.
CA. Rajat Mohan
B.Com(H), ACA, ACS, DISA
MOHAN AGGARWAL & ASSOCIATES
Chartered Accountants
Head Office
F-31 D.B. Gupta Market, Karol Bagh, New Delhi-110005
Office Phone: 011-23672609 / 23535809
Branch Office
18A, IInd Floor, North Avenue Road, West Punjabi Bagh, New Delhi-110026
office Phone: 011-47322696/97
Website: www.delhicamohan.com
E-mail: rajat.mohan@icai.org
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