Capital Gain exemption: Section 54 B

Asset to be transferred: Urban agricultural land.

Asset on which capital gain to be invested: Agricultural land (Urban or rural).

• Individual / HUF

• The agricultural land transferred should be a capital asset (situated in an urban area). (refer note)
• The agricultural land must be used by the assessee or by his parents or HUF for agricultural purposes for at least two years immediately preceding the date of transfer.
• The new agricultural land (urban or rural) should be purchased within two years from the date of transfer.

• Amount invested in new agricultural land or capital gain whichever is less.

• Unutilised capital gain can be claimed as exemption by depositing the same in the capital gain A/c scheme with any nationalised bank before the due date of filing return of income.
• If the amount in the capital gain deposit A/c scheme remains unutilised for a period of two years, the unutilised amount will be taxable as LTCG in the PY in which the 2 years expires.

• The new agricultural land should not be transferred within a period of three years from the date of purchase.
• If transferred, the cost of new asset shall be reduced by the amount of capital gain exempted earlier while calculating capital gain in the year of transfer.
• By reducing the capital gain from the cost of asset, the amount of capital gain exempted earlier is indirectly chargeable to tax in the year of sale of Agricultural land.

• Capital Gains on compensation received on compulsory acquisition of urban agricultural land is exempt from tax under section 10(37).

Note: Transfer of rural agricultural land because it is not a capital asset as per section 2(14) of the Income tax act, 1961.