You do not always need to pay tax on the capital gain when you have sold your agricultural land and made a profit. You have a way out in section 54B of the Income Tax Act. According to it, in case you sell your farmland and use the profit to buy another piece of agricultural land, you will be tax-exempted.
This is only applicable to individuals and Hindu Undivided Families (HUFs).
What Section 54B Means (FY 2024-25 / AY 2025-26)
- You are allowed to claim exemption on short-term and long-term capital gains.
- You, your parents, or HUF must have used the land you sold to farm at least 2 years before selling.
- Within 2 years of the date of sale, you must purchase new agricultural land.
Simple Example
Suppose you sell farmland and earn a capital gain of ₹20 lakhs. If you buy another farmland for ₹15 lakhs, then your tax exemption will be ₹15 lakhs (whichever is lower—your gain or reinvestment).
Check Out:- Explore Farmland Projects Near Bangalore
What if You Don’t Buy New Land Right Away?
No problem. You can still claim the benefit by investing the unused capital gain in a Capital Gains Account Scheme (CGAS) before filing your ITR. This money can be spent on buying farmland in two years.
When Will You Lose the Exemption?
- If you sell the new land within 3 years, the tax benefit will be taken back.
- In case you save the money in CGAS and fail to purchase new land within 2 years, the money will be considered as taxable capital gain.
Section 54B Explained in Short
| Rule | What It Means |
| Who may say | Only individuals and HUFs. |
| Land type | Should be urban agricultural land. |
| Pre-sale usage | Land should have been in farming use for at least 2 years. |
| Reinvestment rule | Purchase new farmland within 2 years of sale. |
| CGAS option it in the | Record unused capital gains prior to ITR filing and utilize future. |
| Lock-in condition | Do not sell the new land in 3 years. |
| Exemption amount | Less of: capital gain earned OR money invested in new land (including CGAS). |
| Deadline | A new land purchase should be within 2 years. |
✅ In brief: Section 54B is a smart tax exemption rule for selling agricultural land. You won’t owe income tax on those profits if you use them to buy new farmland within the specified time frame.
Source: The Economic Times{https://search.app/QX5vA}