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.
- 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 –
|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|
- William F. Buckley, Jr.
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