Extract Of Section 54B of Income Tax Act 1961

54B. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

 (i)  if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii)  if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.

(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the new asset within the period specified in sub-section (1), then,—

 (i)  the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of two years from the date of the transfer of the original asset expires; and

(ii)  the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

(Republished With Amendments)

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15 Comments

  1. bharadwaja mopidevi says:

    mam,

    Your explanation is great , but to claim exemption under 54B , the asset transferred should be a Urban agricultural land

  2. Samir Bhuptani says:

    One need to pay attention and on section 54B(1)(i) and (ii). The tail part of the same states “and for the purpose of computing in respect of the new asset any CAPITAL GAIN arising from its transfer within a period of three years…” so, the condition is that the NEW ASSET should be capable to generate Capital Gain and to be able to generate Capital Gain it has to be capital asset. So, if the new asset is a rural land then basic exemption may be denied, since it is not a capital asset.

  3. Rajendra says:

    Can this question be answered.
    I purchased agriculture land in 2006,got the land converted to residential purpose during 2009 but been doing agriculture ever since 2006 till date & filling my IT returns declaring my agricultural income of 10-12 lakhs every year.Although the residential conversion of my land took place on records,no buildings were raised, instead agricultural activity had been continuing.Now if I sell this property & buy another agricultural land for the same amount as the sale consideration,will I be liable to pay the so called CAPITAL GAIN TAX

  4. Rahul says:

    Even if the sale of new agricultural land within the lock in period is exempted but the sale will invoke the capital gain arised on original sale to be taxed as soon as the agrcultural land is sold before stipulated period.

    Revert if i am correct

  5. CA. VIJAY J. REDDY says:

    Exemtion u/s.54B is available only when there is a transfer of an agricultural land used for agriculture during the previous 2 yrs and within 2 yrs another agricultural land is purchased for being used for agricultural purposes. Sec.2(14) exempts agricultural land as specified u/s.2(1A). Hence, your logic works in a very limited way. Only when an agricultural land in urban area is sold and then an agricultural land is purchased in a rural area as specified u/s.2(1A) then the assessee will be benefited.

  6. Bhumit says:

    The capital gain invested in the agricultural land would be exempt under section 54B and if the new land so purchased is situated in the areas specified in the section 2(14)(iii), the onward sale of such new land would also be exempt from capital gain tax. Hence a loophole.

  7. Bhumit says:

    Capital gain if invested in the agricutural land will be exempt under section 54B, moreover if the new land so acquired is situated in the areas specified in the section 2(14)(iii), the onward sale of such new would also be exempt from capital gain tax.

  8. CA Ashok V. Barbole says:

    The exemption u/s54B is available only on capital gain (Long term or Short term) arised on the sale of urban agricultural land. And the eligible investment is u/s54B is only agricultural land, it may be urban agricultural or rural agricultural land. Considering the both the point of exemption it seems that there may be very few number of people may be eligible to claim this exemption due to its very nature i.e. sale of urban agricultural land and purchase of any agricultural land. The purpose of law makers behind this provision is to maintain the level of investment in agricultural land and to give relief to farmers who is forces to sale the agricultural land located in urban area. Considering the involvement of agricultural operation this exemption should not be considered as Tax Evasive instead is all about to promote investment in agriculture..

  9. Abhimanyu Bind says:

    I am not agree with the points raised by the Author in this Article.
    Because section 2(1A)doesn’t covers the revenue received by selling agricultural land. So, by any mean a person can only claim exemption under section 50 B.

    Facts, shall be checked by editor before publishing such articles on this site.

    Thanks.

  10. Swati Garg says:

    Hi,

    As per my understanding, explanation 1 to section 2(1A) excludes any income arising from the transfer of any agricultural land mentioned in Section 2(14)(iii)(a) or (b) i.e. it is taxable. So, the loophole mentioned would be only when investment is made in agricultural lands which are not covered in section 2(14)(iii)(a) or (b).

  11. Ratnakar Gedam says:

    It is wrong inference that Long Term Capital Gain tax exemption is source of tax evasion. Because tax evasion is crime attracting penalty and tax exemption permitted by the Parliament is enbling law. Reinvestment helps grow economy, tax evasion attracts penalty equal to 3 times amount purported to be evaded thus there is no incentive to evade tax. Most of the officers are corrupt and their mind is corrupted to the extent that they see everything wrong in the process of finding opportunity to earn illegal money so they try to find fault with law enacted by the Parliament and try to enact themselve law thus trying to perform role as law maker instead of helping tax payers and nation for compliance of the law enacted by the Parliament.

  12. Amit says:

    But I thought that if someone was to sell their agriculture land acquired for exempting from the above Section before the stipulated period of 3 years, the capital gains exempt would be taxed in the year in which sale is done. Is that not true?

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