Change is an inevitable part of life, and sometimes it takes us on unexpected journeys. Today, I want to share with you the inspiring story of a farmer who faced a significant change in his agricultural life and how he overcame the challenges that came with it.
Meet Mr. Raja, a diligent farmer who had to make a difficult decision to shift his agricultural land for certain reasons. His objective was not to earn income from the sale of his old land but to transition to a new piece of agricultural land. However, there was a concern: if he were liable to pay income tax on the capital gains from the sale, it would impose a significant hardship on him.
Section 54B offers relief from such hardships.
This section grants relief to taxpayers who sell their agricultural land and use the sale proceeds to acquire another agricultural land.
Let’s explore the key conditions to claim the benefits under Section 54B.
- Individual or HUF: The benefit of Section 54B is available only to individuals or Hindu Undivided Families (HUFs).
- Agricultural Land: The asset being transferred must be agricultural land, whether it is classified as a long-term or short-term capital asset.
- Agricultural Use: The individual or their parents must have used the agricultural land for agricultural purposes for at least two years immediately preceding the date of transfer.In the case of an HUF, any member of the HUF should have used the land.
- Acquisition of New Land: Within two years from the date of transfer of the old land (or from the date of receipt of compensation in case of compulsory acquisition), the taxpayer should acquire another agricultural land.
It’s important to note that if the agricultural land is compulsorily acquired under any law and the consideration is approved by the Central Government or RBI and received on or after April 1, 2004, no capital gains would be chargeable to tax as per Section 10(37).
Now, let’s apply these conditions to Mr. Raja’s case. He purchased an agricultural land in April 2018 and used it for agricultural purposes ever since. In July 2023, he sold the land for Rs. 8,40,000, resulting in a capital gain of Rs. 1,00,000. Can he claim the benefit of Section 54B by purchasing another agricultural land?
The answer is yes!
Mr. Raja satisfies all the conditions of Section 54B. Therefore, he can claim the benefit by acquiring another agricultural land within the specified time limit.
However, there’s a caveat to be aware of. If the new agricultural land is transferred within three years from the date of its acquisition, the benefit granted under Section 54B will be withdrawn.
This restriction aims to prevent misuse of the exemption. If such a situation arises, the amount of capital gain previously claimed as an exemption under Section 54B will be deducted from the cost of acquisition of the new agricultural land when computing capital gains arising from the transfer.
To facilitate the process, the Capital Gain Deposit Account Scheme comes into play.
If the taxpayer has not utilized the capital gain (either in whole or in part) for the purchase of another agricultural land by the time of filing the income tax return, they can avail of the exemption by depositing the unutilized amount in a Capital Gains Deposit Account Scheme. This scheme, governed by the Capital Gains Deposit Accounts Scheme, 1988, allows the farmer to withdraw the deposited amount within the specified time limit of two years to purchase the new land.
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