Capital Gains Deduction Section 54B

Tax Deduction for Transfer of Agricultural Land

Capital Gains Deduction is available,

  1. if you are having Capital Gain from transfer of an agricultural land used by you or by your parents only for agricultural purposes for atleast 2 years prior to the date of transfer, and

  2. if you invest in purchasing any other land for being used for the purpose of agriculture within 2 years from the date of transfer of the original agricultural land.

The amount invested by you for purchase of a new agricultural land would be allowed as a deduction from the Capital Gains.

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How to claim the CG Deductions?

Conditions to claim the deduction,

  • The Land should have been used for Agricultural Purposes, for atleast 2 years prior to the date of transfer.

  • Acquires within two years any other Agricultural land.

Procedure to claim this Capital Gains deduction,

  • after taking into consideration for the amount that you already invested for the purchase of the new Agricultural Land up to the due date of filing of return of income,

  • should deposit in bank the remaining amount which you intend to use for purchasing the new Agricultural Land in a Capital Gains Deposit Account on or before the due date for filing of the return.

You should have

  • proof of investment in purchase of Agricultural Land and

  • proof of making deposit into the capital gains deposit account,

whenever required by the Assessing Officer.

Time Limit to Utilise the Money deposited in Capital Gains Deposit Account

The amount which is deposited in the Capital Gains Deposit Account has to be utilised by you, for the purpose of purchase of the new Agricultural Land within two years from the date of transfer.

What happens if you don't utilise the Money with in the specified period?

If you fail to utilise this amount either wholly or partly for the above purposes within the period the amount remaining unutilised would be taxed as Capital Gains in the year in which the above mentioned period of two years is over.

Capital Gains Deduction for Agricultural Land Transfer - Example Calculation

Let us continue with an example.

Let's assume, you sold an Agricultural Land on 02.03.2012,
for Rs 40,00,000. And the agricultural Land was purchased by you on 10.10.2005 for Rs 20,00,000.

Then the Agricultural Land becomes a long term capital asset as the period of holding would be more than 36 months (10.10.2005 to 02.03.2012). And its transfer gives rise to long term capital gains.

Note:Deduction u/s 54B of Income Tax Act is applicable for both Short Term (STCG) & Long Term Capital (LTCG) Gains. I have chosen LTCG here.

Let's now calculate the LTCG on Agricultural Land Transfer using the LTCG Calculator ».

CG-Agricultural-Land

Calculated Agricultural Land LTCG

Capital-Gains-Deduction

Here the LTCG is Rs8,41,046, and your capitail gains tax liability is
Rs1,68,209. Let's see how you can save your capital gains tax.

In this case of Agricultural Land LTCG you have the option to, purchase a new Agricultural Land before 02.03.2014, i.e. within two years from the date of transfer. (02.03.2012).

Let's Consider 31st July 2012 as the due date for filing your Income tax return, and that you have invested in a new Agricultural Land
Rs5,00,000 up to that date.

Now to claim Capital Gains deduction for entire LTCG, you should deposit Rs3,41,046/- Rs(8,41,046 - 5,00,000) in a Capital Gains Deposit Account on or before 31st July, 2012.

If, out of this amount, you utilise only Rs 1,00,000 for the purchase of new Agricultural Land by 02.03.2014, the remaining amount
Rs2,41,046 (3,41,046 - 1,00,000) would be taxed as Capital Gains for the assessment year 2014-15.

Withdrawal of Exemption

If the new Agricultural Land is transferred within three years from the date of acquisition, then while calculating the capital gains for that transfer, the cost of new Agricultural Land shall be reduced by the capital gains claimed as exempt.

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