Page 136 - DCOM301_INCOME_TAX_LAWS_I

Unit 5: Exemptions and Deductions – II

2. The transfer is affected in the course of, or in consequence of, the shifting of such industrial Notes
undertaking (hereinafter referred to as the “original asset”) to any Special Economic
Zone. Such Special Economic Zone may be situated in urban area of any other area.
3. The assessee has within a period of one 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 to Special Economic
Zone; and
d. incurred expenses on such other purpose as may be specified in a scheme framed by
the Central Government for the purposes of this section.

If the above conditions are satisfied, then the amount of exemption is equal to:
(i) the amount of capital gain generated on transfer of capital assets in the case of
shifting of an industrial undertaking as stated above; or

(ii) the cost and expenses incurred in relation to all or any of the purposes mentioned in
(a) to (d) supra (such cost and expenses being hereinafter referred to as the new
asset), whichever is lower.
Consequences if the New Asset is Transferred within 3 Years
If the new asset is transferred within a period of 3 years from the date of its purchase or construction
or acquisition, the amount of exemption given earlier under section 54G would be taken back.
In such a case, the capital gain on transfer of the new asset will be calculated as follows:

Particulars `
Sale consideration of the new asset xxxxxx
Less: Cost of acquisition (original cost of acquisition of the new asset minus xxxxxx
exemption given earlier under section 54GA which is going to be taken back
because the new asset is transferred within 3 years)
Short-term capital gain xxxxxx

Deductions in respect of profits and gains by an undertaking or enterprise engaged in
development of Special Economic Zone

Section 80-IAB has been inserted to give deduction to the developers of special economic zone.
The following conditions should be satisfied –
1. The taxpayer is a developer of a special economic zone.

2. The gross total income of the taxpayer includes profits and gains derived by an undertaking
from any business of developing a special economic zone.
3. Such special economic zone is notified on or after April 1, 2005.

4. The books of the account of the taxpayer are audited.
If the above conditions are satisfied, the taxpayer can claim 100 per cent deduction in respect of
the aforesaid profit.

The aforesaid deduction is available for 10 consecutive assessment years. The deduction may be
claimed, at the option of the taxpayer, for any 10 consecutive assessment years out of 15 years

LOVELY PROFESSIONAL UNIVERSITY 131