Section 10(37) of the Income Tax Act provides a capital gains exemption for individuals or Hindu Undivided Families (HUFs) on the compulsory acquisition of urban agricultural land.
Key Conditions for Exemption:
- Eligible Person: Only individuals or HUFs can claim this exemption.
- Nature of Land: The land must be urban agricultural land—i.e., land within or near a municipality with a population over 10,000.
- Usage: The land must have been used for agricultural purposes by the individual, their parents, or the HUF for at least two years immediately before the date of transfer.
- Type of Transfer: The transfer must be through compulsory acquisition under any law, or where the compensation is determined/approved by the Central Government or RBI.
- Timing: The compensation must be received on or after 1st April 2004.
What’s Exempt:
If all the above conditions are met, the entire capital gain from the compulsory acquisition is fully exempt—there’s no monetary cap.
Example:
Suppose Mr. Arjun owns urban agricultural land near a city with a population of 2 lakh. He has been cultivating it for over two years. In FY 2024–25, the government compulsorily acquires the land and pays him ₹1.5 crore. Since the land qualifies and the acquisition is compulsory, the entire capital gain is exempt under Section 10(37).
