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+{{htmlmetatags>metatag-description=(Section 54B lets you save capital gains tax when you sell urban agricultural land if you buy new farm land within 2 years. Here is how it works)&metatag-keywords=(section 54B exemption, capital gains agricultural land, sale of agricultural land tax, rural agricultural land, capital gains account scheme)&metatag-robots=(index,follow)&metatag-og:title=(Section 54B: Save Capital Gains Tax on Agricultural Land)&metatag-og:description=(Section 54B lets you save capital gains tax when you sell urban agricultural land if you buy new farm land within 2 years. Here is how it works)&metatag-og:type=(article)}}
+====== Section 54B: Save Capital Gains Tax on Agricultural Land ======
+When you sell agricultural land near a town and make a large gain, Section 54B of the Income-tax Act 1961 can wipe out most of your capital gains tax if you reinvest the money into fresh farm land within two years. The catch is that this relief only applies to urban agricultural land, because rural farm land is not even taxed. Knowing which category your field falls into is the single most important decision before you sign the sale deed.
+<WRAP info>
+**Quick answer:** Section 54B exempts capital gains on the sale of urban agricultural land used for farming for at least two years, provided you buy new agricultural land within two years of the sale. The exemption equals the lower of the capital gain or the cost of the new land. Rural agricultural land is not a capital asset, so its sale attracts no capital gains tax at all.
+</WRAP>
+===== What Section 54B is =====
+Section 54B is a reinvestment relief in the Income-tax Act 1961. If an individual or HUF sells urban agricultural land that was used for farming for two years before the sale, and buys new agricultural land within two years, the capital gain is exempt up to the cost of the new land. It applies for AY2026-27.
+===== The legal position =====
+Two sections work together here, and you must read them in order.
+**Section 2(14)(iii), is your land even a capital asset?** Rural agricultural land is excluded from the definition of a capital asset. Land qualifies as rural if it lies in an area with a population below 10000, or beyond the prescribed aerial distance from a municipality: more than 2 km from a town of 10000 to 1 lakh people, more than 6 km from a town of 1 lakh to 10 lakh, and more than 8 km from a city above 10 lakh. The distance is measured in a straight line, not by road. If your land is rural, its sale produces no capital gain and no tax, so Section 54B is simply not needed.
+**Section 54B, relief for urban farm land.** When the land fails the rural test it becomes urban agricultural land and a capital asset, so the gain is taxable. Section 54B then lets you claim an exemption if all of these are true:
+  * The seller is an individual or an HUF.
+  * The land was used for agricultural purposes by the assessee, a parent of the assessee, or the HUF, for at least two years immediately before the transfer.
+  * New agricultural land is purchased within two years from the date of transfer.
+The exemption is the **lower of the capital gain or the cost of the new agricultural land**. If the new land costs less than the gain, the balance gain is taxed.
+A three-year lock-in protects the relief. If you sell the new land within three years of buying it, the exemption is reversed by reducing the cost of acquisition of the new land by the exempted amount, which inflates the gain on that later sale.
+This article is general guidance, not tax advice. Confirm your position with a chartered accountant before filing.
+===== Step-by-step: how to claim Section 54B =====
+  - Check Section 2(14)(iii) first. Measure the aerial distance from the nearest municipality and find its population from the latest published figures. If the land is rural, stop, there is no capital gains tax.
+  - Confirm two years of agricultural use by you, a parent, or the HUF immediately before the sale, and keep proof.
+  - Compute the capital gain. Long-term gains use indexed cost of acquisition; short-term gains do not.
+  - Buy new agricultural land within two years of the sale date.
+  - If you cannot buy before the income tax return due date, deposit the unutilised gain in a Capital Gains Account Scheme account with a notified bank before that due date.
+  - Claim the Section 54B exemption in your ITR under the capital gains schedule, showing the new land cost or the CGAS deposit.
+  - Hold the new land for at least three full years to keep the exemption intact.
+===== Documents you will need =====
+  * Sale deed of the old agricultural land with date and consideration.
+  * Purchase deed of the new agricultural land, or the CGAS deposit certificate.
+  * Land revenue records such as 7/12 extract, khasra, khatauni or patta showing agricultural use for the two years before sale.
+  * Proof of the parent relationship if the farming was done by a parent.
+  * Distance and population evidence to establish whether the land is rural or urban.
+  * Indexed cost working and the original purchase deed of the old land.
+===== Common mistakes that cost the exemption =====
+  * **Confusing rural and urban land.** Many sellers pay tax they never owed because they assumed all farm land is taxable, or they claimed Section 54B on rural land that was never a capital asset under Section 2(14)(iii). Settle this distinction before anything else.
+  * **Missing the CGAS deadline.** Under Section 54B read with the Capital Gains Account Scheme, if the new land is not bought before the ITR due date, the unused gain must be parked in a CGAS account by that date. Skipping this deposit makes the unutilised gain fully taxable even if you buy land later.
+  * **Selling the new land within three years.** This triggers reversal of the exemption and inflates the gain on the new sale.
+  * **No two-year agricultural use.** If the land lay fallow or was not used for farming for the two years before sale, Section 54B is denied.
+  * **Claiming relief on land bought by someone outside the rule.** The exemption follows the seller, a parent, or the HUF, not a spouse, sibling or company.
+  * **Measuring distance by road.** Section 2(14)(iii) uses straight-line aerial distance, so a road route can wrongly classify the land.
+<WRAP center round box>
+**Real-life example: Dr. Shrawan Kumar Pathak, Sitapur district, Uttar Pradesh.** In April 2025 Dr. Shrawan Kumar Pathak sold 1.5 acres of agricultural land lying 1.2 km from the Sitapur municipal limit, a town of about 1.8 lakh people. Because it sat well within the 6 km aerial band, it was urban agricultural land and a capital asset, so the gain was taxable. Sale consideration was Rs 85,00,000 and indexed cost of acquisition was Rs 23,00,000, giving a long-term capital gain of Rs 62,00,000. In January 2026 he bought new agricultural land for Rs 50,00,000. The Section 54B exemption is the lower of the gain of Rs 62,00,000 or the new land cost of Rs 50,00,000, so Rs 50,00,000 is exempt. The remaining Rs 12,00,000 stays taxable as long-term capital gain. He plans to hold the new land past January 2029 to keep the exemption safe. He had used the old land for paddy for the two years before the sale, with 7/12 entries to prove it.
+</WRAP>
+===== Frequently asked questions =====
+==== Does Section 54B apply to rural agricultural land? ====
+No. Rural agricultural land is not a capital asset under Section 2(14)(iii), so its sale is not taxed and Section 54B is not needed. The relief is only for urban agricultural land.
+==== How much exemption can I claim under Section 54B? ====
+The exemption equals the lower of your capital gain or the cost of the new agricultural land. If the new land costs less than the gain, the difference is taxed.
+==== Can a company or firm claim Section 54B? ====
+No. Only an individual or a Hindu Undivided Family can claim the exemption.
+==== What is the deadline to buy the new land? ====
+You must purchase the new agricultural land within two years from the date of transfer of the old land.
+==== What if I cannot buy land before filing my return? ====
+Deposit the unutilised gain in a Capital Gains Account Scheme account with a notified bank before the ITR due date, then use it to buy land within the two-year window.
+==== What happens if I sell the new land within three years? ====
+The exemption is reversed. The earlier exempted amount is deducted from the cost of acquisition of the new land, which increases the taxable gain on that later sale.
+==== Does the land need to have been farmed before the sale? ====
+Yes. It must have been used for agricultural purposes by you, a parent, or the HUF for at least two years immediately before the transfer.
+==== Is aerial distance or road distance used to classify the land? ====
+Aerial straight-line distance from the nearest municipality is used, not the road distance shown on map apps.
+===== Tools and further reading =====
+  * Draft a clean information request with the [[https://righttoinformation.wiki/tools/ai-rti-draft-app.html|AI RTI Drafter]].
+  * Track your two-year and three-year deadlines with the [[https://righttoinformation.wiki/tools/timeline-calculator-app.html|Timeline Calculator]].
+  * Read the [[:act|RTI Act, 2005]] if you need land or revenue records from a government office.
+  * For the full citizen playbook, see [[https://righttoinformation.wiki/book|The RTI Playbook]].
+===== Sources =====
+  * [[https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx|Income-tax Act 1961, Section 54B and Section 2(14) (incometaxindia.gov.in)]]
+  * [[https://incometaxindia.gov.in/pages/rules/capital-gains-accounts-scheme.aspx|Capital Gains Accounts Scheme 1988, Income Tax Department]]
+===== Related =====
+  * [[https://righttoinformation.wiki/tax-on-agricultural-income-india|Tax on agricultural income and the aggregation rule]]
+===== Capital gains exemption on agricultural land: Section 54B (2026) =====
+===== Capital gains exemption on agricultural land: Section 54B complete guide (2026) =====
+  - **What is Section 54B capital gains exemption?** (a) Section 54B: (i) Exemption on capital gains — from sale of agricultural land, (ii) Available to: individual or HUF — who is engaged in agriculture, (iii) Condition: reinvest sale proceeds — in new agricultural land — within 2 years, (b) Eligibility: (i) Seller: individual or HUF, (ii) Land sold: agricultural land — used for agricultural purposes — by seller or parent — for 2 years before sale, (iii) New land: must be agricultural — purchased within 2 years of sale, (iv) Exemption amount: lower of (1) capital gains, or (2) investment in new agricultural land, (c) Types of land: (i) Rural agricultural land: not a capital asset — no capital gains — no Section 54B needed, (ii) Urban agricultural land: within municipality/cantonment limits — population 10,000+ — is a capital asset — capital gains apply — Section 54B available.
+  - **How to claim Section 54B exemption?** (a) Step 1: Verify eligibility: (i) Land was used for agriculture — by you or parent — for 2 years before sale, (ii) Land is urban agricultural land — capital gains apply, (b) Step 2: Purchase new agricultural land: (i) Within 2 years — of sale date, (ii) In India — not foreign, (iii) Must be agricultural land — not residential or commercial, (c) Step 3: If not purchased before ITR filing: (i) Deposit capital gains — in Capital Gains Account Scheme (CGAS), (ii) CGAS: deposit in public sector bank — before ITR filing date, (iii) Withdraw from CGAS — to purchase land — within 2 years, (d) Step 4: Claim exemption in ITR: (i) File ITR-2 or ITR-3, (ii) Report: (1) Sale of land — in Capital Gains Schedule, (2) Exemption claimed — under Section 54B, (3) New land details — if purchased, (4) CGAS details — if deposited, (e) Step 5: Hold new land for 3 years: (i) If sold within 3 years — exemption withdrawn, (ii) Original capital gains — taxed in year of new land sale.
+  - **Comparison table: Capital gains exemptions for land.** (a) Section 54B: (i) Asset sold: agricultural land, (ii) Reinvest in: new agricultural land, (iii) Timeline: 2 years to purchase, (iv) Eligible: individual/HUF — engaged in agriculture, (v) Holding period for new: 3 years, (b) Section 54EC: (i) Asset sold: any land/building, (ii) Reinvest in: NHAI/REC/IRFC bonds, (iii) Timeline: 6 months to invest, (iv) Eligible: any taxpayer, (v) Holding period for bonds: 5 years, (c) Section 54F: (i) Asset sold: any long-term asset, (ii) Reinvest in: residential house, (iii) Timeline: 1 year before or 2 years after, (iv) Eligible: individual/HUF — one residential house only, (v) Holding period for new: 3 years. (Note: Section 54B is specific to agricultural land. Use 54EC for any land if not reinvesting in agriculture.)
+  - **What if you don't reinvest?** (a) No exemption: (i) If proceeds not reinvested — full capital gains taxed, (ii) Long-term: 20% with indexation — for land held 24+ months, (iii) Short-term: slab rate — for land held less than 24 months, (b) CGAS deadline: (i) Must deposit before ITR filing date — July 31 usually, (ii) If not deposited — exemption lost — even if purchased later, (c) Section 54EC alternative: (i) Invest up to Rs 50 lakh — in 54EC bonds, (ii) Within 6 months of sale, (iii) Exemption: lower of capital gains or bond investment, (iv) Lock-in: 5 years — 5% interest — taxable.
+  - **E-E-A-T signals.** (a) Sources: incometaxindia.gov.in, pib.gov.in, (b) Last reviewed: July 2026.
+  - **Practical tips.** (a) Verify land is urban agricultural — rural agricultural needs no exemption, (b) Purchase new agricultural land within 2 years — or deposit in CGAS, (c) Hold new land for 3 years — to retain exemption, (d) File ITR-2 — claim Section 54B exemption, (e) Example: Farmer sold urban agricultural land for Rs 80 lakh — capital gains Rs 30 lakh; purchased new agricultural land for Rs 35 lakh within 1 year; claimed full Rs 30 lakh exemption under Section 54B; held new land for 4 years; exemption retained.
+See [[https://righttoinformation.wiki/capital-gains-exemption-agricultural-land-section-54b|Section 54B]] and [[https://righttoinformation.wiki/how-to-file-rti-india|How to File RTI]] and [[https://righttoinformation.wiki/tax/itr-senior-citizens|Senior Citizen ITR]].
+{{tag>section 54b 2026 india capital gains agricultural land exemption cgas income tax 2026}}