For agricultural purposes, I intend to sell my urban agricultural land within the municipal limits, which has been repurchased for ten years. How can I save capital gains tax? Can I purchase another agricultural land out of the sale proceeds in my name or the joint names of my husband/sons or invest the amount in specified assets in the joint name of my husband/ sons Can I deposit the proceeds in my savings account or joint account with my husband/sons What proof shall I have to show to the IT department that it is agricultural land, if any time required?
Agricultural land in a rural area is not a capital asset u/s 2(14); therefore, no capital gains arise on its sale. However, urban agricultural land is considered a capital asset, and profits from selling such lands would be treated as capital gains and attract tax.
Capital Gains on Agricultural Land: Exemptions and tax saving strategies explained
Section 54B provides for exemption of taxable long-term capital gains in respect of the sale of agricultural land if another agricultural land is bought within two years from the date of sale of the land. If the original agricultural land was situated in an urban area, exemption u/s 54B can still be claimed by purchasing a land in rural area. Moreover, if this rural land is sold even within three years, there would be no capital gains, short-term or long-term.
The capital gains may either be long-term or short-term. Purchasing any other land, whether in urban areas or otherwise, within 2 years will entitle you to claim an exemption under Section 54B as long as the newly purchased land is used for agricultural purposes.
You may also use Section 54EC to save long-term capital gains by investing the unindexed long-term capital gains in capital gains of specified financial institutions within 6 months.
The bonds have a lock-in period of 5 years. One can only invest up to Rs. 50 lakhs in bonds during one financial year or for claiming an exemption for one financial year.
You may also claim exemption u/s 54F by purchasing a residential house within 1 year before or 2 years after the date of sale of the old property. Alternatively, you may also construct a residential house or book an under-construction house and get the construction completed within 3 years from the date of the sale of the land. You can not claim an exemption under Section 54F if you own more than one residential house on the date of the sale of the land.
In the case of Section 54B or 54F, the amount not invested before the due date of filing the income tax return is required to be deposited in an account under the Capital Gains Account Scheme (CGAS) with a bank in India.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on social media platform X (formerly Twitter)
