Section 54B, 54D & 54G: Lesser-Known Capital Gains Exemptions Every Business Owner Should Know
- shubhamtulsian05
- 22 hours ago
- 4 min read
When people think of capital gains exemptions in the Income Tax Act, they typically think of Section 54 (reinvestment in residential house), Section 54F (any asset reinvested in house), and Section 54EC (investment in capital gains bonds). But the Act contains several other targeted exemptions for specific situations — compulsory land acquisition, agricultural land reinvestment, and relocation of industrial undertakings — that can result in complete exemption from capital gains tax on substantial amounts.
Section 54B — Exemption on Transfer of Agricultural Land
Who Qualifies?
Individual taxpayers or HUFs who transfer agricultural land and reinvest in new agricultural land qualify. The transferred land must have been used for agricultural purposes by the taxpayer or their parents in the 2 years immediately preceding the date of transfer.
What is Exempt?
The entire capital gain (LTCG or STCG) arising from the transfer of the agricultural land is exempt to the extent the capital gain is reinvested in acquiring new agricultural land within 2 years from the date of transfer.
Capital Gains Account Scheme: If the new agricultural land cannot be purchased before the ITR filing due date, the unutilised capital gain must be deposited in a Capital Gains Account Scheme (CGAS) bank account before filing the return. The CGAS amount must be utilised for land purchase within 2 years.
Lock-in period: The new agricultural land cannot be transferred within 3 years from the date of acquisition. If transferred within 3 years, the exemption is withdrawn and the original capital gain becomes taxable in the year of such subsequent transfer.
Important: Rural vs Urban Agricultural Land
Note that agricultural land situated beyond specified urban limits (not within 8 km of municipal limits with population above 10,000) is not a 'capital asset' at all under Section 2(14) — meaning gains on its transfer are not taxable regardless. Section 54B becomes relevant for agricultural land that IS a capital asset — i.e., land within urban/semi-urban areas meeting the specified distance criteria.
Section 54D — Exemption on Compulsory Acquisition of Industrial Land or Building
Who Qualifies?
Any assessees (individuals, companies, firms) whose land or building forming part of an industrial undertaking is compulsorily acquired by the government or any authority under any law.
What is Exempt?
Condition 1: The land or building must have been used by the assessee for the purposes of the industrial undertaking in the 2 years immediately preceding the date of compulsory acquisition.
Condition 2: The capital gain must be reinvested in purchasing new land or building for the purpose of shifting or re-establishing the industrial undertaking, or setting up another industrial undertaking.
Time limit for reinvestment: Within 3 years from the date of receipt of compensation from the government.
Amount exempt: The lower of the actual capital gain or the amount reinvested in new industrial land/building.
Practical Significance
With infrastructure projects, highway expansions, metro rail corridors, and smart city developments triggering large-scale compulsory acquisition of industrial properties across India — Section 54D is increasingly relevant for business owners whose factory land or industrial building is acquired under government schemes. The compensation received is often substantial, and Section 54D allows complete rollover of that gain into a new industrial establishment.
Section 54G — Exemption on Shifting Industrial Undertaking from Urban to Non-Urban Area
What it Covers
Section 54G provides a capital gains exemption when an industrial undertaking located in an urban area transfers its assets (plant, machinery, land, building) and uses the proceeds to shift to a non-urban area — effectively incentivising industrial decongestion of cities.
Assets Covered
Plant and machinery, land, building, or rights in land and building — used for the purposes of the industrial undertaking.
Conditions for Exemption
Reinvestment: The capital gain must be reinvested in purchasing new plant and machinery, land, and/or building in the non-urban area and meeting the expenses of shifting and re-establishing the undertaking.
Time limit: Reinvestment must happen within 1 year before or 3 years after the date of transfer.
CGAS: Unutilised capital gain must be deposited in CGAS before the ITR filing due date.
Amount exempt: To the extent capital gain is utilised for the specified purposes — if the entire capital gain is reinvested, the exemption is complete.
Relationship with Section 54GA
Section 54GA is a parallel provision covering shifts of industrial undertakings to Special Economic Zones (SEZs) — with similar conditions and a 3-year reinvestment timeline. Both 54G and 54GA are relevant for businesses considering factory relocation under government industrial policy incentives.
Combining Multiple Exemptions
Where the transfer involves multiple types of assets — for example, an industrial property being sold that includes land, building, and plant/machinery — different exemption sections may apply to different components: Section 54D for the compulsory acquisition element, Section 54G or 54GA for voluntary shift, and Section 54EC for any remaining gain after the specific exemptions. Careful structuring of the transaction and clear documentation of how each component is classified can maximise the combined exemption.
How PGT & Associates Can Help
PGT & Associates provides expert capital gains planning for complex asset transfers — particularly for business owners dealing with compulsory acquisition compensation, industrial relocation, or agricultural land sales in semi-urban areas. We compute the optimal exemption strategy across all applicable sections, ensure CGAS compliance where required, and handle ITR filing with detailed capital gains schedules. Contact us at +91-87994-99189.
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