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EXEMPTION TO CAPITAL GAINS ON TRANSFER OF AGRICULTURAL LAND
A farmer wants to shift his agricultural land for 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 sale of old land but was to shift to another land.
If in this case, the seller was liable to pay income-tax on capital gains arising on sale of 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.
If in this case, the seller was liable to pay income-tax on capital gains arising on sale of 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.
Conditions
Following conditions should be satisfied to claim the benefit of section 54B.
- The benefit of section 54B is available only to an individual or a HUF
- The asset transferred should be agricultural land. The land may be a long-term capital asset or short-term capital asset.
- The agricultural land should be used by the individual or his parents for Illustration agricultural purpose at least for a period of two years immediately preceding the date of transfer. In case of HUF the land should be used by any member of HUF.
- Within a period of two years from the date of transfer of old land the taxpayer should acquire another agricultural land. In case of compulsory acquisition the period of acquisition of new agricultural land will be determined from the date of receipt of compensation. However, as per section 10(37), no capital gain would be chargeable to tax in case of an individual or HUF if agricultural land is compulsorily acquired under any law and the consideration of which is approved by the Central Government or RBI and received on or after 01-04-2004.
Amount of exemption
Exemption under section 54B will be lower of the following
- Amount of capital gains arising on transfer of agricultural land or
- Investment in new agricultural land [including the amount deposited in Capital Gains Deposit Account Scheme).
Consequences if the new land is transferred
- Exemption under section 54B is available in respect of rollover of capital gains arising on transfer of agricultural land into another agricultural land. However, to keep a check on misutilisation of this benefit a restriction is inserted in section 54B. The restriction is in the form of prohibition of sale of the new agricultural land.
- If a taxpayer purchases new agricultural land to claim exemption under section 54B and subsequently he transfers the new agricultural land within a period of 3 years from the date of its acquisition, than the benefit granted under section 54B will be withdrawn. The ultimate impact of the restriction is as follows
- The restriction will be attracted if, after claiming exemption under section 54B, the new agricultural land is sold within a period of 3 years from the date of its purchase.
- If the agricultural land is sold within a period of 3 years from the date of its purchase, then at the time of computation of capital gain arising on transfer of the new land, the amount of capital gain claimed as exemption under section 54B will be deducted from the cost of acquisition of the new agricultural land.
Capital Gain Deposit Account Scheme
- To claim exemption under section 54B, the taxpayer should purchase another agricultural land within a period of two years from the date of transfer of old land. If till the date of filing the return of income the capital gain arising on transfer of the old land is not utilised (in whole or in part) for purchase of another agricultural land, then the benefit of exemption can be availed by depositing the unutilised amount in Capital Gains Deposit Account Scheme in any branch of public sector bank, in accordance with Capital Gains.
- Deposit Accounts Scheme, 1988 (hereafter referred as 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.
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