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Capital Gains on transfer of agricultural land [Section 54B] under Exemption of capital gains – Income Tax

Capital Gains on transfer of agricultural land [Section 54B] under Exemption of capital gains :

Eligible assessee – Individual & HUF

Conditions to be fulfilled

  • There should be a transfer of urban agricultural land.
  •  Such land must have been used for agricultural purposes by the assessee, being an individual or his parent, or a HUF in the 2 immediately preceding years.
  • He should purchase another agricultural land (urban or rural) within 2 years from the date of transfer. Quantum of exemption
  •  If cost of new agricultural land ≥ Capital gains (short-term or long-term), entire capital gains is exempt.
  •  If cost of new agricultural land < Capital gains (short-term or long-term), capital gains to the extent of cost of new agricultural land is exempt.

Examples

  •  Example 1 – If the capital gains is Rs 3 lakhs and the cost of the new agricultural land is Rs 4 lakhs, then the entire capital gains of Rs 3 lakhs is exempt.
  •  Example 2 – If capital gains is Rs 3 lakhs and cost of new agricultural land is Rs 2 lakhs, then capital gains is exempt only upto Rs 2 lakhs.
    Consequences of transfer of new agricultural land before 3 years
  •  If the new agricultural land is transferred before 3 years from the date of its acquisition, then cost of the land will be reduced by capital gains exempted earlier for computing short-term capital gains.
  •  However, if the new agricultural land is a rural agricultural land, there would be no capital gains on transfer of such land.

Continuing Example 1, if the new agricultural land (urban land) is sold after, say, 2 years for Rs 6 lakhs, then short term capital gain chargeable to tax would be –

   Particulars           Rs           Rs
Net consideration   6,00,000
Less: Cost of new agricultural land    
Cost of acquisition 4,00,000  
Less: Capital gains exempt earlier 3,00,000 1,00,000
Short-term capital gains chargeable to tax   5,00,000

 

Lavish Dey

Lavish Dey

"I would like to electrocute everyone who uses the word 'fair' in connection with income tax policies."
- William F. Buckley, Jr.
Lavish Dey

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