Capital gain on sale of agriculture land is exempted to an individual/ HUF as per the provision of section 54B of income tax act.
Content
1.What is section 54B of income tax act?
2.Who can claim exemption of capital gain on sale of agricultural land u/s 54B of income tax act?
3.What are the conditions to be satisfied to claim exemption under section 54B of income tax act?
4.What is the amount of exemption available on capital gain for sale of agricultural land u/s 54B ?
5.What if the new agriculture land is transferred or sale within 3 years of purchase?
6.What is Capital Gain Deposit Scheme Account Scheme u/s 54B ?
7.Example of section 54B
1.What is section 54B of income tax act?
If farmer sale/transfer an agriculture land and intention/objective is not to earn income but to buy another agriculture land. For instance he may shifted from one agriculture land to another agriculture land. Further, if taxpayer is liable to pay tax on this capital gain income than it would not be fair to him.
Hence, the income tax department prescribed the list of capital gain exemption on sale of specific capital asset by an assesses. Therefore, taxpayer can claim capital gain exemption by satisfying certain conditions. Therefore, the provision of section 54B provides an exemption for sale or transfer of agriculture land by an assesses.
As we all know capital gain means transfer or sale of immovable property like house ,land or building etc.
2.Who can claim exemption of capital gain on sale of agricultural land under section 54B of income tax act?
An assessee can claim capital gain exemption on sale of agriculture land under section 54B . However, only following assessee can claim exemption under this section:
- Individual or his parents
- HUF
However, Company , Firm or LLP cannot claim exemption under section 54B of income tax act.
3.What are the conditions to be satisfied to claim exemption under section 54B of income tax act?
To claim exemption under section 54B of income tax act following conditions should be satisfied:
- The agriculture land shall be used by an individual or his parents or HUF for agricultural purpose for a period of 2 years immediately preceding the date of transfer or sale.
- An assessee will have to purchase new agricultural land within 2 years from the sale of old agriculture land.
- The new agricultural land which is purchased within the time limit specified above should be situated in India.
- Further, an assessee must be an Individual or HUF.
- Agricultural land transferred/sold must be long term capital asset (i.e. it must be held for a period of more than 24 months before sale or transfer).
4.What is the amount of exemption available on capital gain for sale of agricultural land u/s 54B ?
Amount of exemption available under section 54B of income tax act is as under:
If amount of capital gain is less than the cost of the new agricultural land the entire amount of capital gain is exempt from tax.
On other hand, if the amount of the capital gain is greater is greater than cost of new agricultural land. The difference between the amount of capital gains & the cost of new agricultural land is chargeable to tax as capital gain.
5.What if the new agriculture land is transferred or sale within 3 years of purchase?
If the new agricultural land is transferred, within period of 3 years from date of its purchase or the amount of capital gain arising therefrom, together with the amount of capital gains exempted earlier, will be chargeable to tax in the year of sale of new agricultural land.
To attain this , it has been provided that if the new agricultural land is transferred/sold within 3 years from date of its acquisition . The amount of exemption u/s 54B shall be reduced from the cost of acquisition of new agricultural land, while calculating short-term capital gain on transfer of new agricultural land.
In brief, lock period is 3 years is applicable when an assessee claims exemption u/s 54B of income tax act.
Point to be noted:
It may be noted that if the new agricultural land is situated in a rural area in India. , the gain arising on its sale/transfer is not chargeable to tax , as an agricultural land situated in a rural area is not a “capital asset” u/s 2(14) of income tax act.
6.What is Capital Gain Deposit Scheme Account Scheme u/s 54B ?
If the amount of capital gain is not utilized by assessee for purchase of new agricultural land before due date of filing the ROI . It shall be deposited by him on or before the due date of filing ROI in the deposit account in any public sector bank/IDBI Bank in accordance with the CGAS.
An assessee can claim exemption of amount already spent on purchase of new agricultural land along with the amount so deposited in CGAS.
In addition, if amount deposited in Capital Gains Accounts Scheme is not utilized within the time limit of 3 years. Then it shall be taxable as income of the last year.
7.Example of section 54B
Mr. Hitesh sells agricultural land situated within the municipal limit of Calcutta on 1 July, 2022 for Rs. 34,00,000 (Stamp duty value Rs. 40,07,000) which was purchased by him in June 2006 for Rs. 3,00,000. On June, 2023 he purchases agricultural land for Rs. 4,10,000 and deposits Rs. 10,30,000 in deposit account for availing exemption u/s 54B .He purchased another agricultural land on June 30, 2024 for Rs. 8,47,000 by withdrawing from the deposit account. Further, amount left in the deposit account is withdrawn by the end of July 10, 2024. Determine the amount of capital gain.
Computation of Capital Gain Assessment Year 2023-24
| Particulars | Amount (Rs.) |
| Sale Proceeds | 40,07,000 |
| Less: Index cost of acquisition{ 3,00,000*331/122} | (8,13,934) |
| balance | 31,93,066 |
| Less: Exemption u/s 54B Cost of agricultural land purchased on June 1, 2023 | (4,10,000) |
| Amount deposited in the deposit account | (10,30,000) |
| Long term capital gains | 17,53, 066 |
Assessment Year 2025-26 (i.e. relevant to previous year in which 2 years from the date of sale of agricultural land expires)
| Particulars | Amount (Rs.) |
| Amount deposited in deposit account | 13,30,000 |
| Less: amount utilized for purchase of agricultural land up to June , 2024 | (8,47,000) |
| Long term capital gain | 1,83,000 |
You can Refer: https://taxandfinanceguide.com/section-54-of-income-tax-act/ and https://taxandfinanceguide.com/what-is-capital-gain/ , https://taxandfinanceguide.com/long-term-capital-gain-tax/
