Section 87 — Industrial Shift Urban to Non-Urban | ITA 2025

Section 87 — - CG ON SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA

Section 87 is the substantive equivalent of 1961 s. 54G -- a TARGETED RELIEF for industrial undertakings shifting from URBAN AREAS to non-urban areas (decongestion / decentralisation policy intent). The provision allows business assessees (companies / firms / individuals operating industrial undertakings) to roll over CG arising from transfer of plant / machinery / building / land used for the urban industrial unit into corresponding investments in the new non-urban location. FIVE sub-sections cover: (1) eligibility / four expenditure heads / 1-year-before / 3-year-after window / cost-vs-CG mechanics; (2) CGAS deposit; (3) deemed cost; (4) unutilised charge in 3-year-expiry year; (5) 'urban area' definition (municipal-corporation / municipality CG-notified having regard to population / industry-concentration / planning need). Distinct from s. 82 / s. 86 (residential-house regimes) -- s. 87 is BUSINESS-asset-focused with shift-of-establishment requirement.

Statutory text — Income-tax Act, 2025

Marginal note -- Capital gain on transfer of capital assets in case of shifting of industrial undertaking from urban area

(1) If the assessee has—

(a) capital gains arising from the transfer of capital asset, being machinery or plant or building or land or any rights in building or land used for the business of an industrial undertaking situated in an urban area, effected in the case of shifting of an industrial undertaking situated in an urban area (original asset) to any area [other than an urban area (new area)]; and

(b) within one year before or three years after the date of such transfer,—

(i) purchased new machinery or plant for business of the industrial undertaking in the new area;

(ii) acquired building or land or constructed building for his business in the said area;

(iii) shifted the original asset and transferred the establishment of such undertaking to such area; and

(iv) incurred expenses on such other purpose as specified in a scheme notified by the Central Government for this section, then, instead of the capital gains being charged to income-tax as income of the tax year in which the transfer took place, it shall be dealt with as follows:—

(A) if the cost and expenses incurred on all or any of the purposes mentioned in sub-clauses (i) to (iv) referred to as “new asset”,—

(I) is less than the capital gains, the difference shall be charged under section 67 as the income of the tax year; or

(II) is equal to or more than the capital gain, no capital gain shall be charged under section 67; and

(B) for computing any capital gain arising from transfer of the new asset within three years of its being purchased, acquired, constructed or transferred, the cost shall be nil in case of sub-clause (A)(II) or shall be reduced by the amount of the capital gain in case of sub-clause (A)(I).

(2) If the capital gain is not used by the assessee for the new asset within one year before the date of transfer of the original asset, or before filing the return of income under section 263, then—

(a) the unutilised amount shall be deposited in a specified bank or institution and utilised as per the scheme notified by the Central Government;

(b) such deposit shall be made before the filing of the return and not later than the due date applicable in the case of the assessee for filing the return of income under section 263(1); and

(c) the proof of deposit shall be submitted along with such return.

(3) For the purposes of sub-section (1), the amount already utilised for purchasing or constructing the new asset together with the deposited amount under sub-section

(2) shall be deemed to be the cost of the new asset.

(4) If the amount deposited under sub-section (2) is not wholly or partly utilised for the new asset within the period specified in sub-section (1), then,—

(a) the unutilised amount shall be charged under section 67 as the income of the tax year in which the period of three years from the date of the transfer of the original asset expires; and

(b) the assessee shall be entitled to withdraw such unutilised amount in accordance with the scheme referred to in sub-section (2).

(5) For the purposes of this section, the expression “urban area” means any area within the limits of a municipal corporation or municipality, declared to be an urban area by the Central Government for the purposes of this section, having regard to—

(a) the population;

(b) concentration of industries; and

(c) need for proper planning of the area and other relevant factors.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 87	INCOME-TAX ACT, 1961 -- s. 54G
s. 87(1)(a) -- CG on transfer of industrial-undertaking plant/machinery/building/land in urban area shift to non-urban area	1961 s. 54G(1)
s. 87(1)(b)(i)-(iv) -- four reinvestment heads: new plant; building/land; shift-of-establishment; CG-notified expenses	1961 s. 54G(1)
s. 87(1)(A)/(B) -- cost-vs-CG mechanics + 3-year claw-back via cost-reduction	1961 s. 54G(1) Proviso
s. 87(2)-(4) -- CGAS deposit / deemed cost / expiry charge	1961 s. 54G(2)
s. 87(5) -- 'urban area' definition	1961 s. 54G(2) Explanation

STATUTORY ARCHITECTURE

ELIGIBILITY: (a) ANY ASSESSEE (individual / HUF / firm / LLP / company) operating INDUSTRIAL UNDERTAKING in URBAN AREA. Distinct from s. 82 / s. 86 (individual / HUF only). (b) ORIGINAL ASSET: machinery / plant / building / land OR rights in building / land used for the business of the urban industrial undertaking. Effectively all CG-eligible assets of the urban factory. (c) SHIFT REQUIREMENT: must be in course of or consequence of SHIFTING the industrial undertaking from urban area TO ANY OTHER AREA (other than urban). The shift-of-establishment requirement (sub-s. 1(b)(iii)) is condition precedent. REINVESTMENT WINDOW (sub-s. 1(b)): 1 YEAR BEFORE OR 3 YEARS AFTER date of original transfer. Wider window than s. 82 / 86 (which allow 1-before / 2-after for purchase) -- recognises industrial relocation complexity. FOUR EXPENDITURE HEADS (sub-s. 1(b)(i)-(iv)): (i) NEW MACHINERY / PLANT for the business of the industrial undertaking in the new area; (ii) Acquired BUILDING / LAND or constructed BUILDING for his business in the new area; (iii) SHIFTED THE ORIGINAL ASSET and transferred ESTABLISHMENT to new area; (iv) Incurred expenses on such OTHER PURPOSE as CG-notified scheme. Aggregate of these = 'new asset' for s. 87 purposes.

MECHANICS / CLAW-BACK

EXEMPTION (sub-s. 1(A)/(B)): (I) IF cost-and-expenses (on heads (i)-(iv)) IS LESS THAN CG: DIFFERENCE chargeable u/s 67; (II) IF cost-and-expenses >= CG: NO CG CHARGED. 3-YEAR CLAW-BACK (sub-s. 1(B)): if new asset transferred within 3 years of being purchased / acquired / constructed / transferred: (a) For (A)(II) full-shielding case: cost of new asset = NIL for subsequent CG computation; (b) For (A)(I) partial-shielding case: cost reduced by amount of CG previously exempt. Effectively s. 82-style claw-back via cost-base reduction. CGAS DEPOSIT (sub-s. 2): if reinvestment incomplete before s. 263 due date, deposit unutilised CG in CGAS-style scheme; submit proof with return; utilise within window. DEEMED COST (sub-s. 3): utilised + deposited = deemed cost of new asset. UTILISATION FAILURE (sub-s. 4): unutilised CGAS at 3-year-expiry charged in expiry year + withdrawal entitlement.

'URBAN AREA' DEFINITION (sub-s. 5)

'Urban area' = any area within limits of MUNICIPAL CORPORATION or MUNICIPALITY, declared as urban area by CG, having regard to: (a) population; (b) concentration of industries; (c) need for proper planning of the area and other relevant factors. CG-notified list of urban areas (CBDT notifications under 1961 s. 54G periodically issued). The definition is administrative -- not all municipal areas are 'urban' for s. 87 purposes; only CG-notified ones. Practitioner: verify the original-undertaking location is CG-notified urban area at the time of transfer; non-notified areas (even if dense) don't qualify.

CASE LAW

(i) Texspin Engineering v. CIT (Bom HC) -- shift-of-establishment test; physical relocation crucial. (ii) ITAT precedents on partial-shift / phased relocation; substantial-shift principle. (iii) CG-notified urban area list updates -- maintain current list reference.

PLANNING NOTES

(i) URBAN AREA VERIFICATION -- verify original undertaking is in CG-notified urban area; obtain CBDT notification copy. (ii) SHIFT-DOCUMENTATION -- document board resolution / state-government NOC / pollution-clearance / new-area land allotment / EPF transfer / employee relocation. (iii) WIDER WINDOW -- 1y before / 3y after; longer than s. 82 / 86; useful for complex industrial relocations. (iv) FOUR-HEAD AGGREGATION -- collate all four heads (plant + building + transfer + CG-scheme expenses) for cost-base maximisation. (v) CGAS DEPOSIT -- before s. 263 due date; designated bank; submit proof. (vi) 3-YEAR HOLDING LOCK -- DO NOT transfer new plant / building within 3 years; cost-reduction claw-back.

CROSS-REFERENCES

Section 67 -- CG charge.
Section 70 -- Transactions not regarded as transfer.
Section 72 -- Mode of computation.
Section 88 -- SEZ shifting (parallel s. 54GA).
Section 89 -- DVO reference.
Section 263 -- Return-filing due date.
CGAS-88 scheme.
CG notifications listing urban areas.

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