Indian Government allows individuals and Hindu undivided families(HUF’s)to avail tax exemption on the sale and repurchase of some capital assets.
Capital asset includes house, shares , ancestral property, agriculture land etc. The individual can claim tax exemption on that particular capital asset under certain provisions of the income tax act,1961. Of which we are discussing on section 54B of the income tax act.
What is Section 54B and to how to avail the exemption?
Section 54B is applicable only to individuals and HUF’s on transferring the sale of “Agriculture Land”. In other words an individual can claim tax exemption on sale of one agriculture land and purchase another agriculture land within the capital gain arised of the sale of the land.
This 54B exemption can be claimed up to 2 years from the date of the sale of the agriculture land where he should purchase another agriculture land within that 2 Years.
Up to 2 Years, the capital gain amount can be deposited in Capital Gains account available in leading public sector banks.
There would be no short term and long term capital gain tax on the sale of the agriculture land, but he should mandatory purchase another agriculture land within 2 Years from the date of sale.
Section 54 B can be claimed under-
- Capital Gains arising on the sale of agriculture land
- Amount invested in the new agriculture land
whichever is “lower of the above”
Is there any capital gains tax on agriculture land situated in rural areas?
As per the Indian tax laws, agriculture land in rural areas should not be treated as capital asset and hence there would be “No Capital Gain” Tax arises on the sale and repurchase of agriculture land under section 54 B in rural areas.
Hence, if you are looking to purchase an agriculture land by selling your old agriculture land, there would be no capital gains tax if you utilise section 54 B properly.
But do remember you have to purchase an agriculture land within 2 years from the date of the sale to avail exemption under section 54 B.