The exemption under Section 54B is available in respect of capital gains arising from transfer of agricultural land, if following conditions are satisfied:
(i) the agricultural land had been transferred by an individual or HUF;
(ii) the agricultural land has been used by the individual or his parents or by HUF for agricultural purposes during the 2 years immediately preceding the date of transfer;
(iii) the assessee had purchased another agricultural land (rural or urban) within a period of 2 years after the date of transfer of the original agricultural land to be used for agricultural purpose.
|1. Transfer of agricultural land can be after or before 2 years of acquisition, but it must be used by the assessee or his parents or HUF for a period of at least 2 years immediately preceding the date of transfer, for agricultural purposes.
2. It may be noted that capital gain on the compulsory acquisition of urban agricultural land is exempt if conditions mentioned under section 10(37) are satisfied.
Quantum of Deduction
- If the amount of capital gain is equal to or less than the cost of the new agricultural land, the entire capital gain shall be exempt.
- If the amount of capital gain is greater than the cost of the new agricultural land, the cost of the new agricultural land shall be allowed as an exemption.
ln other words, capital gain will be exempt to the extent it is invested for acquiring the new agricultural land.
Scheme of deposit in Capital Gains Accounts Scheme, 1988
The scheme of deposit is applicable, in this case also. In other words, the assessee should either purchase the agricultural land and/or deposit the amount under the Capital Gains Accounts Scheme on or before the due date of furnishing the return of income. The amount so spent/deposited, by the due date of furnishing the return, shall be treated as if it were used for the said purpose.
The proof of such a deposit shall be attached with the return. In this case, the amount already utilised by the assessee for the purchase of the agricultural land, along with the amount so deposited, shall be deemed to be the cost of the agricultural land and shall be eligible for exemption.
Consequences where the Amount Deposited in the Capital Gains Accounts Scheme is not utilised for the purchase of the Agricultural Land within the Specified Period:
In this case, the amount not so utilised shall be charged as capital gains (short-term/long-term depending upon the original transfer) of the previous year in which the period of 2 years from the date of transfer of the original asset expires. In this case, the assessee shall be eligible to withdraw the amount from the scheme.
Consequences where the New Agricultural Land is Transferred within a period of 3 years of its Purchase:
In this case, the capital gain which was exempt earlier uJs 54B shall be reduced from the cost of the new agricultural land for the purpose of computation of capital gain in respect of the new agricultural land. Such capital gain will be:
(i) short-term capital gain if the new agricultural land is transferred within 2 years.
(ii) long-term capital gain if the new agricultural land is transferred after 2 years but before 3 years from the date of its acquisition. Benefit of indexation of the net cost of acquisition (i.e., cost of acquisition — capital gain exempt under section 54B earlier) will also be allowed.
Further, the assessee can again claim the exemption under Section 54B, if all other conditions are satisfied.