IndiaFilings / Learn / Income Tax / Section 54B Of Income Tax
Section 54B of Income Tax - Capital Gains - IndiaFilings

Section 54B of Income Tax

Section 54B of the Income Tax Act is a section introduced in the legislative framework with the objective of providing relief for farmers who are transferring agricultural land. Prior to the introduction of Section 54B, when a farmer sold agricultural land, the farmer had to pay capital gains tax. The objective of introducing the section is to provide an exemption for the transfer of agricultural land. Once a taxpayer is eligible to claim an exemption under section 54B of Income Tax capital gains tax need not be paid towards the sale of agricultural land. However, the exemption shall be available towards capital gain arising on account of transfer of urban agricultural land exclusively if the sale proceeds are reinvested in acquiring new agricultural land. Taxpayers should note that rural agricultural land is excluded from the definition of a capital asset as contained in section 2(14) of the Income Tax Act, 1961. Since the rural agricultural land is not covered within the scope of ‘capital asset’ no capital gain is payable at the time of transfer of rural agricultural land. On the other hand, the urban agricultural land being covered within the scope of ‘capital assets’ attracts capital gain. To counter the levy of capital gain arising on sale of urban agricultural land, the exemption under this section has been provided by the Government. The present article explains the provisions of Section 54B of the Income Tax Act, the conditions to be fulfilled for availing exemption, amount of exemption, the consequence on sale of new agricultural land and other relevant provisions.

Conditions For Availing Exemption Under Section 54B

  1. Exemption under section 54B is available only to an individual or a HUF;
  2. Exemption under section 54B is available only on the sale of urban agricultural land;
  3. Exemption is available on both long term capital assets and/or short term capital assets;
  4. In order to claim an exemption under section 54B, the urban agricultural land must have been used by the individual or by the parents of the individual for agricultural purpose for the period of at least 2 years prior to the date of transfer. It must be noted that in case of transfer of land by a HUF, land should have been used by any of the members of the HUF;
  5. Exemption under section 54B is available only if the taxpayer acquires another agricultural land within a period of two years from the date of transfer. It must be noted that the taxpayer has an option to re-invest in both urban and rural agricultural land;

Amount of Exemption Available Under Section 54B

The exemption would be lower of the following –
  1. a) Amount of capital gain accrued on the transfer of urban agricultural land;
  2. b) Amount invested in acquiring new agricultural land.

Capital Gain Deposit Account Scheme

Exemption under section 54B of the Income Tax Act, 1961 is available only if the sale proceeds of transferred urban agricultural land is re-invested in acquiring another agricultural land. The new agricultural land is required to be acquired within a period of two years from the date of transfer of urban agricultural land. A situation may arise then the capital gain accrued on account of sale of urban agricultural land is not utilized, in whole or part, for acquiring new agricultural land till the date of filing or income tax return. In such cases, the benefit of exemption can be obtained by depositing the unutilized amount into Capital Gain Deposit Account Scheme.

Consequence on Transfer of Newly Acquired Agricultural Land

In order to avail exemption under section 54B of the Income Tax Act, 1961, the assessee is required to acquire new agricultural land within a period of two years from the date of transfer. Only on fulfilling the said condition, an exemption under section 54B is available. However, the assessee has to face the consequence, in case the newly acquired agricultural land has been transferred within a period of 3 years from the date of its acquisition. The consequence of the transfer of newly acquired agricultural land within a period of 3 years is as under – While computing capital gain at the time of transfer of new agricultural land, the amount of capital gain which had been claimed as an exemption under Section 54B would be deducted from the cost of acquisition of new agricultural land and the net capital gain would be computed accordingly. Let us understand the above consequence with an example – Suppose Mr. X has transferred his urban agricultural land in May 2017. The urban agricultural land has been transferred for an amount of say INR 50,00,000. The capital gain arising on the transfer of the said urban agricultural land is INR 10,00,000. Mr. X, in order to claim an exemption under section 54B of the Income Tax Act, 1961, purchases another urban agricultural land by investing INR 35,00,000 in December 2017. Since the entire amount is re-invested, the capital gain of INR 10,00,000 is claimed as an exemption as per provisions of section 54B of the Income Tax Act, 1961. On March, 2018, Mr. X transfers the newly acquired agricultural land for an amount of say INR 80,00,000. The capital gain to be calculated on the transfer of the new agricultural land would be computed as follows – Full value of the consideration received                      INR 80,00,000 (-) Cost of acquisition (35,00,000 – 10,00,000)    (INR 25,00,000) Taxable short term capital gain                              INR 55,00,000 In the above example, since the newly acquired agricultural land has been transferred before the expiry of lock-in period of 3 years, the capital gain of INR 10,00,000 claimed as an exemption under section 54B has been reduced from the purchase cost of new agricultural land i.e. INR 35,00,000.
IndiaFilings
Updated on: March 9th, 2020

Popular Post

Download ePAN Card – Get ePan from NSDL & UTIITSL
80 Small Business Ideas

Starting a small business can be a transformative venture, offering the exciting opportunity...

Nadakacheri – Income Caste Certificate Download Online in Karnataka
TDS Rate Chart for Financial Year 2025-2026 (Assessment Year 2026-2027)

Tax deduction at source, shortly and popularly known as TDS, was introduced by the Income Tax...

Divorce Rules in India: Everything You Need to Know
How To Download GST Registration Certificate Online?

Goods & Services Tax Certificate is issued to people who are registered under GST...

PAN Card Cancellation Online
Find Complete Details of GST Registration Procedure

GST registration applies to all individuals and entities supplying goods or services in India. GST...

Check Your PF Claim Status Online Using PF Tracking ID
Gift Tax in India: Applicability, Exemptions and Rules

Gift tax in India is applied when the value of the received gift exceeds ₹50,000 in the...

Check Your PF Claim Status Online Using PF Tracking ID
Old Regime vs New Regime 2025: Which Tax Regime is Better for You?

The Union Budget 2025 has brought significant changes to India’s personal income tax structure, raising the...

Check Your PF Claim Status Online Using PF Tracking ID
What is the minimum turnover for GST?

The Goods and Services Tax (GST) is an indirect tax system introduced in India in 2017. It functions...

Check Your PF Claim Status Online Using PF Tracking ID
How can I check if a trademark is registered?

A trademark search is simply checking if another person or organization does not already own the...

Check Your PF Claim Status Online Using PF Tracking ID
Section 194H of the Income Tax Act: TDS on Commission & Brokerage

Section 194H of the Income Tax Act in India mandates the deduction of Tax at Source (TDS) on commission or brokerage...

Check Your PF Claim Status Online Using PF Tracking ID
Section 80G Deduction - Income Tax Act

Section 80G Deduction is a facility available in the Income Tax Act which allows taxpayers to...

Check Your PF Claim Status Online Using PF Tracking ID
Crypto Tax in India: Taxation On Cryptocurrency

The Income Tax Department (ITD) has not provided specific guidance on crypto taxes for Indian investors. However...

Check Your PF Claim Status Online Using PF Tracking ID
Internal Audit Applicability Under Companies Act, 2013

Internal audit applicability is a critical concept for companies in India, impacting various...

Check Your PF Claim Status Online Using PF Tracking ID
Difference between Private and Public Company

In the business world, two main types of companies exist: private company and public company...

Check Your PF Claim Status Online Using PF Tracking ID
New GST Rules for Rent

Ministry of Finance vide a Notification No 05/2022- Central Tax (Rate) dated 13.7.2022 has issued...

Check Your PF Claim Status Online Using PF Tracking ID
GSTR-1 and GSTR-3B Due Date Extension - New Due Dates For January 2025

The Central Board of Indirect Taxes and Customs (CBIC) has recently announced an extension...

Check Your PF Claim Status Online Using PF Tracking ID
Different Depreciation Rates under Companies & Income Tax Act

Depreciation is a key concept in finance and accounting. It helps us manage how the value of...

Check Your PF Claim Status Online Using PF Tracking ID
Form 10IA - Section 80DD Deduction

Form 10IA of the Income Tax Department must be filed by taxpayers claiming income tax deduction...

Check Your PF Claim Status Online Using PF Tracking ID
GST on Used Cars: New 18% Tax Rate Explained

The Goods and Services Tax (GST) system in India has been a significant reform in the country's...

Check Your PF Claim Status Online Using PF Tracking ID
MSME Registration - Udyam Registration

India's Gross Domestic Product (GDP) benefits significantly from the substantial...

Check Your PF Claim Status Online Using PF Tracking ID
Section 43B(h) - New MSME 45 Days Payment Rule

The Finance Act, 2023 introduced the MSME 45-day payment rule under Section 43B(h) of the Income Tax Act...

Check Your PF Claim Status Online Using PF Tracking ID
Direct Tax Vivad Se Vishwas (DTVSV) Scheme, 2024

The Direct Tax Vivad Se Vishwas (DTVSV) Scheme, 2024, was announced by Union Finance Minister...