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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. (A).TAXPAYER CATEGORY-SECTION 54GA.

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tax planning through investments

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

slide3

(A).TAXPAYER CATEGORY-SECTION 54GA

This exemption is available to all categories of taxpayers

MOHAN AGGARWAL & ASSOCIATES Chartered Accountants

slide4

(B). CONDITIONS- SECTION 54GA

  • 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

slide5

(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 assetsso 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

thank you
THANKYOU

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