Briefing and summary of section 54B of the Income Tax Act, 1961 Wef AY 1970-71
Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.
54B. (1) (wef AY 1974-75) Subject to the provisions of sub-section (2), (wef AY 1988-89) 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 (wef AY 2013-14) the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (wef AY 1974-75) (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,—
The land is a capital asset , which is used for agriculture purposes , the land is sold , the land was used for agriculture purposes by the assessee or his parents or by hindu undivided family minimum for two years earlier to the date of transfer , This land is called original asset. The second condition is that assessee has within a period of two years after that date has purchased any other land which is being used for agricultural purposes , the capital gain which comes to be taxable shall not be charged to Income tax and the calculation to save the capital gain tax shall be made as per the following provisions :
(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
If the amount of the capital gain is greater than the cost of the land which is purchased by the assessee , the difference is taxable u/s 45 of the Act as the income of the previous year when land was sold . Now if the land which is new asset is sold with in a period of three years , the cost to the land shall be taken as NIL and the entire sales consideration shall be taxable .
(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.
If the amount of the capital gain is equal to less than the cost of the new asset , the capital gain shall not be charged under section 45 of the act , if the new asset is transferred with in a period of three years of its purchase, the cost shall be reduced for calculating the capital gain by the amount of the capital gain which arises on the sale of the new asset .
Wef AY 1988-89
(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 :
The amount of the capital gain which is not utilized by the assessee for the purchase of the new asset before due date of furnishing the return of Income u/s 139(1) shall be deposited by him in any bank or institution and such return shall be accompanied by proof of such deposit and for the purpose of sub section (1) . the amount , if any , already utilized 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.
Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Provided that if the amount deposited with bank under the scheme is not utilized wholly or partly for the purchase of the new asset within the period specified in sub section (1) , then
(i) The amount not so utilized shall be charged u/s 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 . Either he sh all be submitting documents for purchase of the property or he shall be depositing the amount of tax calculated .
Summary of section 54B of the Act
1. The land sold is agriculture land , it is a capital asset and it is used for agriculture purposes by the assessee and his family . This land is called the original asset .
2. Within two years from the date of transfer of the original asset the assessee has purchased an agriculture land if he wants to save the amount of capital gain tax .
3. If the amount of the capital gain tax is greater than the cost of the land which is purchased by the assessee then the difference is taxable u/s 45 of the act . If the new asset is sold within a period of three years then the cost to the land shall be taken as NIL and the entire sales consideration shall be taxable .
4. If the amount of the capital gain is less than or equal to the new asset then the capital gain shall not be chargeable to tax . And if the new asset is sold within a period of three years then the cost of the land shall be reduced by the amount of the capital gain which arises on the sale of the new asset .
5. The amount of the capital gain which is not utilized by the assessee for purchase of the new asset before the date of furnishing of the return u/s 139(1) shall be kept with the bank account as per scheme of the Central Govt . the amount so deposited by the assessee with the bank together with the amount invested for the purchase of the new assets shall be deemed to the cost to the new asset .
6. If the amount deposited with the bank is not utilized by the assessee for the purchase of the new assets with in the period specified under sub section (1) of the Act then the amount not so utilized shall be charged u/s 45 of the Act as the income of the previous year in which the period of two year expires .
7. The assessee can withdrew such amount from the bank by submitting the documents for purchase of the property or deposit of tax challan with the authority who shall be issuing a certificate to the bank for withdrawal of the amount .
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