{"id":14032,"date":"2026-05-27T07:36:28","date_gmt":"2026-05-27T07:36:28","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/section-54g-2\/"},"modified":"2026-05-27T07:36:28","modified_gmt":"2026-05-27T07:36:28","slug":"section-54g-2","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/section-54g-2\/","title":{"rendered":"Section 54G: Capital Gains Relief for Shifting Industrial Units to Rural Areas"},"content":{"rendered":"

Section 54G of the Income Tax Act<\/a> provides capital gains tax<\/a> relief to industrial undertakings that shift their operations from an urban area to a non-urban area. If your business is relocating away from a city to rural or semi-urban regions, this section could make the capital gain<\/a>s arising from that shift completely tax<\/a>-free. It is a section that encourages decongestion of urban industrial zones.<\/p>\n

What is Section 54G?<\/h2>\n

Section 54G exempts capital gains arising from the transfer of assets<\/a> of an industrial undertaking located in an urban area, when the business is being shifted to a non-urban area. The assets covered include land, buildings, and plant and machinery.<\/p>\n

The exemption is available when the capital gain is reinvested in acquiring new assets (land, building, machinery) in the non-urban area to which the business is shifting.<\/p>\n

Who Can Claim Section 54G?<\/h2>\n

Unlike some other exemptions, Section 54G is available to any taxpayer. This includes individuals, HUFs, companies, partnership firms, and any other entity that owns an industrial undertaking.<\/p>\n

What Counts as an Urban Area?<\/h2>\n

For Section 54G, an urban area means any area within the limits of a municipal corporation or municipality. The shifting must be from within such an urban area to an area outside it.<\/p>\n

Reinvestment Conditions<\/h2>\n

To claim the exemption, you must reinvest in the new location to set up the industrial undertaking. The reinvestment must cover:<\/p>\n

– New land (if required).
\n– New building or factory structure.
\n– New plant and machinery.
\n– Expenditure on shifting and establishing the new facility.<\/p>\n

The reinvestment must be completed within one year before or three years after the date of transfer of the original urban assets.<\/p>\n

How Much Exemption Can You Claim?<\/h2>\n

The exemption is the lower of:
\n– The capital gain earned on the transfer of the urban assets.
\n– The net consideration reinvested in the new assets and shifting expenses<\/a>.<\/p>\n

If the entire capital gain is reinvested, the full gain is exempt. If only part is reinvested, the exemption is proportionate to the amount invested versus the gain.<\/p>\n

Capital Gains Account Scheme<\/h2>\n

If the reinvestment has not happened by the time you file your income tax<\/a> return, you can deposit the unspent amount in a Capital Gains Account Scheme. This preserves the exemption claim while the reinvestment is being arranged.<\/p>\n

The deposit must be made before the ITR due date, and the funds must be utilised within the three-year window.<\/p>\n

What Does “Industrial Undertaking” Mean?<\/h2>\n

An industrial undertaking is any undertaking engaged in the business of manufacture, production, processing, or preservation of goods. It includes factories, mills, and processing units. Service businesses, trading<\/a> companies, and software firms generally do not qualify as industrial undertakings under this section.<\/p>\n

Practical Example<\/h2>\n

Sunrise Chemicals operates a chemical plant inside a municipal area in Maharashtra. The state government requested the plant to relocate due to residential encroachment. The company sold its old factory building for Rs. 3 crores (index<\/a>ed cost: Rs. 80 lakhs), generating a capital gain of Rs. 2.2 crores. It purchased new land and constructed a new plant in a rural district for Rs. 2.5 crores. Since the reinvestment (Rs. 2.5 crores) exceeds the capital gain (Rs. 2.2 crores), the entire gain is exempt under Section 54G.<\/p>\n

Section 54G vs Section 54GA<\/h2>\n

Section 54G applies when an industrial undertaking shifts to a non-urban area in general. Section 54GA is a companion provision that applies specifically when the industrial undertaking shifts to a Special Economic Zone (SEZ). The conditions and exemption mechanisms are similar but the destination differs.<\/p>\n

Key Takeaways<\/h2>\n

– Section 54G exempts capital gains from transfer of assets of an industrial undertaking shifting from urban to non-urban areas.
\n– Available to all types of taxpayers, not just individuals or HUFs.
\n– Assets eligible: land, buildings, and plant and machinery.
\n– Reinvest within one year before or three years after the date of transfer.
\n– Unused gains can be deposited in a Capital Gains Account Scheme before the ITR due date.
\n– Service and trading businesses generally do not qualify as industrial undertakings.<\/p>\n

If your manufacturing or processing business is being asked to relocate or is shifting to rural areas for cost reasons, planning your capital gains exemption<\/a> under Section 54G should be part of your financial and legal strategy.<\/p>\n","protected":false},"excerpt":{"rendered":"

Section 54G of the Income Tax Act provides capital gains tax relief to industrial undertakings that shift their operations from an urban area to a non-urban area. If your business is relocating away from a city to rural or semi-urban regions, this section could make the capital gains arising from that shift completely tax-free. It […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14032","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"Section 54G of the Income Tax Act provides capital gains tax relief to industrial undertakings that shift their operations from an urban area to a non-urban area. If your business is relocating away from a city to rural or semi-urban regions, this section could make the capital gains arising from that shift completely tax-free. It…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14032","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14032\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14032"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}