Section 54B Benefits for Individuals and HUFs: Tax Exemptions on Agricultural Land Transactions
Section 54B Benefits for Individuals and HUFs: Tax Exemptions on Agricultural Land Transactions
If you sell agricultural land and use the money to buy other agricultural land, Section 54B of the Income Tax Act, 1961 allows you to claim full exemption on the capital gains.
However, to avoid paying income tax on the sale of agricultural land only individual taxpayers and Hindu Undivided Families (HUFs) can take benefits of Section 54B.
What do You Mean by Section 54B for Financial Year 2024-25?
Section 54B of the Income-tax Act permits an individual or Hindu Undivided Family (HUF) to claim exemption from capital gains arising on the transfer of urban agricultural land within two years of the transfer of urban agricultural land within two transfers. The exemption is allowed up to the lower of the capital gain from the sale or the amount reinvested in new agricultural land, such as deposits made in the Capital Gains Account Scheme.
How much tax you can save using Section 54B
The tax exemption will be permitted if the agricultural land was used for agricultural reasons for 2 years before the date of transfer by the assessee, HUF or his/her parents.
The exemption can be beneficial if, within the mentioned time, capital gain is invested in purchasing new agricultural land, and to claim this, you are required to buy the agricultural land within 2 years after the date of sale of the original asset.
Deposits the capital gains in the CGAS account if not utilised
In case till the date of filing Income tax return, the capital gain is not utilised for the purchase of another agricultural land, then the tax exemption can be beneficial by depositing the unutilised amount in the Capital Gains Deposit Account scheme (CGAS). Within the mentioned limit of 2 years, the new land can be purchased by withdrawing the amount from the said account.
You may lose the entire tax exemption amount permitted under Section 54B, if you do any of the following:
In case the new agricultural land is transferred within 3 years from its purchase, the exemption availed under Section 54B will be adjusted against the cost of acquisition of the new land while determining the capital gain arising on such transfer.
If the amount deposited in the Capital Gains Account Scheme is not utilised for the purchase of agricultural land within 2 years from the date of transfer, the unutilised portion will be treated as a long-term capital gain of the previous year in which the 2-year period expires.