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