Section 88: capital gains exemption on shifting an industrial undertaking into a Special Economic Zone

What Section 88 says

Irrespective of Section 87, where the assessee has capital gains from transferring machinery, plant, building, land, or rights in building or land, used for the business of an industrial undertaking situated in an urban area, in the course of shifting that undertaking to any Special Economic Zone (in an urban or any other area), and within one year before or three years after the transfer the assessee purchases new machinery or plant, acquires or constructs building or land, shifts the original asset and transfers the establishment, or incurs expenses on other notified purposes (together the "new asset") in that SEZ, then instead of the gains being taxed as income of the transfer year: if the cost of the new asset is less than the capital gains, only the difference is charged to tax under Section 67; if the cost of the new asset equals or exceeds the gains, no capital gains are charged to tax.

If the new asset is itself transferred within three years of being purchased, acquired, constructed or transferred, its cost for computing any capital gain on that later transfer is treated as nil (where no gains were originally charged) or reduced by the amount of the earlier gains (where some gains were charged).

Depositing unutilised money before the return due date

If the capital gains are not used for the new asset within one year before the transfer, or before filing the return of income under Section 263, the unutilised amount must be deposited in a specified bank or institution under a Central Government-notified scheme, before filing the return and no later than its due date, with proof of deposit submitted along with the return. The amount already spent, plus the deposited amount, is together treated as the cost of the new asset.

If the deposited amount is not fully used within the time limit, the unutilised amount is charged to tax as income of the tax year in which three years from the date of transfer expires, though the taxpayer may withdraw the unutilised amount under the notified scheme.

How this differs from Section 87

Section 88 applies specifically to relocation into a Special Economic Zone, and can apply even where Section 87 also could - the section overrides Section 87 for SEZ relocations. The "urban area" definition used in Section 88 is the same one used in Section 87.

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