Section 54GA of Income Tax Act: Capital Gains Exemption When an Industrial Undertaking Shifts to an SEZ

Section 54GA provides capital gains relief where an industrial undertaking shifts from an urban area to a Special Economic Zone and the assessee reinvests the capital gain in specified assets and shifting expenses within the prescribed period.

Updated: 28 September 2026

In simple terms: If qualifying business assets used by an industrial undertaking in an urban area are transferred because the undertaking is shifted to an SEZ, the resulting capital gain can be exempt to the extent it is used for specified machinery, plant, land, building and shifting-related expenditure. The destination SEZ may itself be in an urban area or elsewhere.

Contents Meaning and scope Conditions Amount of exemption CGAS deposit Definitions Example Official resources

What is Section 54GA?

Section 54GA of the Income-tax Act, 1961 is a capital gains exemption provision for the shifting of an industrial undertaking from an urban area to a Special Economic Zone. It begins with a non-obstante clause overriding Section 54G for a qualifying shift to an SEZ.

The provision applies where capital gain arises from transfer of a capital asset consisting of machinery, plant, building, land, or rights in building or land used for the business of the industrial undertaking situated in an urban area, and the transfer takes place in the course of or as a consequence of shifting that undertaking to an SEZ.

Original locationIndustrial undertaking situated in an urban area.

New locationA Special Economic Zone, whether situated in an urban area or any other area.

Investment windowOne year before to three years after the date of transfer.

Relief basisCapital gain is exempt to the extent of qualifying cost and expenses.

Conditions and eligible expenditure under Section 54GA(1)

Within one year before or three years after the date of transfer, the assessee must incur qualifying cost or expenditure connected with shifting the industrial undertaking to the SEZ. The section covers the following purposes:

Purchase of machinery or plant for the business of the industrial undertaking in the SEZ.
Acquisition of building or land, or construction of a building, for the business in the SEZ.
Shifting the original asset and transferring the establishment of the undertaking to the SEZ.
Other purposes, if specified under a scheme framed by the Central Government for Section 54GA.

How much capital gain is exempt?

Situation	Tax treatment
Capital gain exceeds the qualifying cost and expenses	The excess capital gain remains chargeable under Section 45. For a qualifying new asset transferred within three years, the statutory cost adjustment rule in Section 54GA applies.
Capital gain is equal to or less than the qualifying cost and expenses	The capital gain is not charged under Section 45, subject to Section 54GA. If the new asset is transferred within three years, its cost is reduced by the exempt capital gain for computing the resulting capital gain.

Section 45: This is the charging provision for profits or gains arising from transfer of a capital asset, subject to the other provisions of the Income-tax Act. Section 54GA operates as a specific reinvestment relief from that capital gains charge when its conditions are satisfied.

Capital Gains Accounts Scheme and Section 54GA(2)

If the capital gain has not been fully appropriated or utilised for the qualifying purposes before filing the return of income, the unutilised amount must be deposited under the applicable Capital Gains Accounts Scheme before furnishing the return and, in any event, not later than the due date under Section 139(1). The amount already utilised together with the qualifying amount deposited is treated as the cost of the new asset for Section 54GA.

The Capital Gains Accounts Scheme was amended in 2025 to expressly include Section 54GA in relevant forms and to recognise electronic payment modes including RTGS, IMPS and NEFT.

If the deposited amount is not used in time: the portion not utilised for the qualifying purposes within the statutory three-year period is charged under Section 45 as income of the previous year in which that three-year period expires. The assessee may then withdraw the amount in accordance with the Scheme.

Important definitions

Special Economic Zone

For Section 54GA, "Special Economic Zone" takes its meaning from Section 2(za) of the Special Economic Zones Act, 2005. Broadly, it means an SEZ notified under the SEZ Act, includes a Free Trade and Warehousing Zone, and includes an existing Special Economic Zone.

Urban area

For this provision, "urban area" means an area within the limits of a municipal corporation or municipality that the Central Government declares, by general or special order and having regard to factors such as population, concentration of industries and planning needs, to be an urban area for this purpose.

Section 139(1)

Section 139(1) prescribes the statutory due date for furnishing the return of income for applicable taxpayers. Under Section 54GA(2), that due date is the outer deadline for making the required deposit of unutilised capital gain under the applicable Capital Gains Accounts Scheme.

Illustrative example

Assume an industrial undertaking in a notified urban area shifts to an SEZ and transfers qualifying business assets, resulting in a capital gain of Rs. 50 lakh. If Rs. 42 lakh is spent within the permitted period on qualifying machinery, land, building and shifting expenditure, the exemption is limited to Rs. 42 lakh and the balance Rs. 8 lakh is taxable, subject to the detailed computation provisions of the Act. If qualifying expenditure is at least Rs. 50 lakh, the full Rs. 50 lakh capital gain may be relieved, provided all statutory conditions are met.

Practical checklist before claiming Section 54GA relief

Confirm that the undertaking was situated in an area qualifying as an "urban area" for Section 54GA.
Confirm that the destination is a notified Special Economic Zone.
Establish that the transfer of the qualifying assets occurred in the course of, or because of, the shifting.
Maintain invoices, conveyance documents, construction records and proof of shifting expenses.
Track the one-year-before and three-years-after statutory investment window.
Deposit any qualifying unutilised amount within the Section 54GA(2) deadline under the applicable Capital Gains Accounts Scheme.
Track the three-year rule applicable to transfer of the new asset and the corresponding cost adjustment.

Official resources

For the current statutory text and related government material, refer to the official Income Tax Department and Department of Commerce SEZ resources linked in the sidebar. Taxpayers should check the law applicable to the relevant assessment year and transaction date before filing a return or claiming exemption.

This page is a general legal and tax information resource. The application of Section 54GA depends on the facts, dates, nature of assets, notified areas, expenditure and the law applicable to the relevant transaction.