Capital-Gains-Exemption-Income-Tax-Section-54B

Capital Gains Exemption – Section 54B

Capital Gains Exemption – Section 54B

A tax exemption is available for taxpayers who make a sale of agricultural land. Normally, under the provisions of Income Tax law, when a taxpayer makes a sale of land, capital gains tax should be paid. However, capital gains exemption is available for sales of land that is used for agricultural purposes. Under the exemption, capital gains, both short-term and long-term, that arise from the transfer of agricultural land is exempt from Income Tax.

Conditions for Exemption

The capital gains exemption for agricultural land is provided only for individual taxpayers and HUFs. To avail of the capital gains exemption, the land that was transferred must have been used by the assessee or a parent of the assessee for agricultural purposes. The utilisation of the land for agricultural purposes must have taken place in the two years immediately preceding the date on which the transfer took place. Further, the assessee should have, within a period of 2 years after the date of sale of the agricultural land, purchased any other land. The land newly purchased should also be used exclusively for agricultural purposes. If the conditions are satisfied, then, instead of the capital gain being charged to income tax as income during the year of transfer, it will be exempt from tax in the following way:

If Capital Gains is more than the Cost of New Asset

If the amount of the capital gain is greater than the cost of the land as purchased, the difference between the amount of the capital gain and the cost of the new asset will be charged as income of the financial year. For the purpose of making the calculation of exemption corresponding to purchase of a new asset, the cost of any capital gain arising from the sale of the agricultural land within a period of 3 years of its purchase is considered as nil.

If Capital Gains is less than the Cost of New Asset

If the amount of the capital gain is equal to or less than the cost of the new asset, then the capital gain will not be charged as income. If the cost of the new agricultural land purchased is less than the quantum of capital gains, the taxable capital gain is expressed through the following formula: capital gains chargeable to tax is calculated as the excess of capital gains over the cost of the new agricultural land (capital gains less cost of the new agricultural land).

To know about the concept of Slump Sale in Income Tax, click here.

Other Related Guides

Form 34DA Form 34DA - Income Tax Form of application by a resident applicant referred to in section 245N(b)(iia) seeking advance ruling under section 245Q(1) o...
Form 3CI Form 3CI - Income Tax Receipt of payment for carrying out scientific research under section 35(2AA) of the Income-tax Act, 1961
Form 3CN Form 3CN - Income Tax Application for notification of affordable housing project as specified business under section 35AD
Depreciation Rates under Income Tax Depreciation Rates under Income Tax Depreciation is the diminution in the value of an asset due to normal wear and tear and due to the passing of tim...
Penalty for Under-Reporting or Misreporting Income Penalty for Under-Reporting or Misreporting Income This article discusses Section 270A of the Income Tax Act. The section is having effectiveness wit...

Post by IndiaFilings

IndiaFilings.com is committed to helping entrepreneurs and small business owners start, manage and grow their business with peace of mind at an affordable price. Our aim is to educate the entrepreneur on the legal and regulatory requirements and be a partner throughout the entire business life cycle, offering support to the company at every stage to make sure they are compliant and continually growing.