Section 54B - Capital Gains

Section 54B: Exemption on Sale of Agricultural Land

A farmer wants to shift to another village for a certain reason and hence he sold his old agricultural land and from the sale proceeds, he purchased another agricultural land. 

In this case, the objective of the seller was not to earn income by the sale of old land but was to shift to another village for better crops. If in this case, the seller was liable to pay income tax on capital gains arising on the sale of the old land, then it would be a hardship on him.

Section 54B gives relief from such a hardship. Section 54B gives relief to a taxpayer who sells his agricultural land and from the sale proceeds, he acquires another agricultural land. 

Let’s Understand Section 54B

Exemption under section 54B of the Income Tax Act is available on Capital Gains on the sale of agricultural land and purchase of new agricultural land. 

Conditions For Availing Exemption Under Section 54B

  • Available only to an individual or a HUF;
  • Available only on the sale of urban agricultural land;
  • Exemption is available on both long term and/or short term capital assets;
  • Land should be used for Agricultural purpose for the period of at least 2 years prior to the date of transfer
  • The agricultural land sold is used for agricultural purposes by the individual / his parent / HUF as the case may be for 2 years prior to transfer.
  • Taxpayer has an option to re-invest in both urban and rural agricultural land
  • Agri Land should be in India

The amount of Exemption under Section 54B will be lower of:

The Cost of new Agricultural land,

The Capital Gains on the sale of Agricultural land.


Capital Gain Deposit Account Scheme

To claim an exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years.

If the taxpayer is not able to purchase agricultural land within 2 years then the benefit of exemption can be availed by depositing the unutilized amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains Account Scheme. 

The new land can be purchased by withdrawing the amount from the said account within the specified time limit of 2 years.


FAQ’s

Can I claim an exemption if I buy new agricultural land in the name of my spouse?

No. The land purchased has to be in the name of the seller. The exemption is not available if new land is purchased in the name of the spouse.

Can NRI claim exemption u/s 54B on land purchase?

Yes. Provided land is in India

Published By: akash On 08/16/21 12:42 PM